MiFID II ‘puts the heat on investment firms’

The second Markets in Financial Instruments Directive, aka MiFID II, requires investment firms to process an unprecedented amount of data capture and storage, according to a report that urges them to make changes to comply with the European Union (EU) regulation as soon as possible.

The report, entitled ‘Mastering MiFID II: Investor Protection’, is issued by capital markets consulting firm GreySpark Partners. It explains the significant changes that buyside organisations must make to their product governance, client management, and risk and compliance processes and systems to better protect their end-investors in line with the demands of MiFID II.

Firms “must begin making these changes now to assure that they are in compliance with MiFID II by the January 2018 implementation deadline” says GreySpark. The report also includes a checklist of changes that buyside firms must make to comply with the regulations in terms of record-keeping, product governance, the provision of advice and due diligence procedures.

The research explores how MiFID II requires buyside firms to capture larger amounts of end-investor data as a comprehensive record of their communications with their clients leading up to any potential trade initiated on the client’s behalf or behest.

Asset managers and institutional investors must capture details of the whole chain of events and store those details in such a fashion that they can be inspected by clients and by regulators, on an on-demand basis. The report also examines technical challenges associated with capturing and storing the data across the various communication channels used by buyside firms to ensure the firm is operating within the bounds of the EU regulations.

The report explores how MiFID II institutes new mandates for buyside firms to continually assess the quality and suitability of the services they offer to their end-investor clients. Specifically, the regulations require asset managers and institutional investors to ensure that they are:

  • Utilising sound product approval processes.
  • Correctly defining and verifying target markets for end-investor products.
  • Correctly classifying their clients as a means of assessing how to act in their best interests.
  • Examining the suitability and appropriateness of products and bundled services sold to end-investor clients, including cross-selling, to adhere to MiFID II’s new requirements.

“The revisions to MiFID II that relate to protection of the end-investor fall into three categories: the first are brand new requirements, the second are minor amendments to existing requirements and the third are codifications of existing best practices that have, to date, not been mandated by regulation,” said Rachel Lindstrom, GreySpark senior consultant and report author.

“Buyside firms should not neglect the latter category, as these amendments to the legal text will have implications for any investment firm that does not yet adhere to industry best practices.”


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