MiFID II… second album syndrome or
    regulatory game changer?

    Has MiFID II built on the success of the first directive or does it fall short in comparison to its predecessor?

    MiFID II a guide for financial advisers

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    What's the story with MiFID II?

    Nevermind the first iteration of MiFID, MiFID II is the latest swathe of regulation that is currently giving financial services the bends. Getting to grips with the colour and the shape of this sprawling directive takes time and lots of planning. Let's begin with the warning, those who doolittle will find that after 3 January 2018 modern life is rubbish.

    If you are paranoid about a late registration for an LEI or how the new client reporting rules will affect your business then we have all the information you need for your discovery and planning for a post MiFID II world.

    What is MiFID II?

    The MiFID II (Markets in Financial Instruments Directive II) came into force on 3 January 2018. MiFID II covers a broad range of issues and delving into the directive in more detail reveals that there is a substantial impact on adviser firms and individuals who are involved in the buying or selling of financial instruments.

    MiFID has been around since 2007 and much of UK financial regulation comes from it, it provides the framework regulation for how investment services and financial markets operate within the European Union (EU).

    MiFID II aims to dramatically reduce the risk of market abuse, strengthen investor protection and increase the efficiency of financial markets. It covers a broad range of issues, but we have focused on those which are most likely to affect you as advisers.

    Manufacturers and distributors

    ​​​​​​​MiFID II will categorise all financial institutions/firms as either a manufacturer or a distributor. These are broadly defined as:

    • Product manufacturers – firms that create, develop, issue and/or design investment products. Fund mangers and DFMs will fall into this category
    • Product distributors – firms that offer and/or recommend investment products and services. Platforms and advisers (who do not have discretionary permissions) will fall into this category

    Watch the replay of the MiFID II webinar with Phil Young

    Nucleus' most recent white paper, MiFID II - a guide for financial advisers has been prepared in partnership with Phil Young of Zero Support.

    On this webinar Phil discusses the white paper and the context and purpose of MiFID II, how the FCA plan to interpret and apply it to the UK and how it will affect advisers, and what actions they will need to take to meet the changes in this legislation.

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    MiFID II issues for advisers to consider

    Third parties who have the authority to deal on behalf of an entity such as a corporate, charity or trust client (excluding bare trusts) will be required to obtain a legal entity identifier (LEI). Without an LEI an entity will not be able to sell or buy reportable assets such as equities, ETFs and investment trusts.

    There is a cost of £115 plus Vat to obtain an LEI from the London Stock Exchange and £70 plus Vat per year to maintain it.

    Discretionary fund managers (DFMs) and adviser firms with discretionary permissions will also require LEIs.

    Adviser action tracklist

    1. Keep a register of all conflicts of interest and review it at least annually.

    2. Review whether you need further qualifications, training or permissions to maintain your independent status, if applicable. Independent advice under MiFID II covers investments such as shares, derivatives and structured products.

    3. If you want to advise on structured deposits, you need to apply for the relevant new permission by 2 January 2018. If you’re not sure, it’s free to apply before this date and will cost £250 afterwards.

    4. Review your recruitment procedures and assess if they need tightening. Is there additional information you can obtain to inform your recruitment decisions, or should you involve someone else in recruitment decisions to make the process more balanced?

    5. Look at your remuneration structure - be careful not to incentivise activity that might negatively impact clients. Does your pay structure include qualitative measures rather than just commercial targets?

    6. Decide which staff the dealing on personal account rule should apply to, and create a record of all direct equities they hold.

    7. Decide if you need to apply for a Legal Entity Identifier. If you need one, apply for it as soon as possible through the London Stock Exchange in time for 3 January 2018.

    8. Establish whether your DFM or platform will offer online reporting access to avoid the need for paper reporting.

    9. Understand whether your DFM or platform will issue the 10% loss notification and how, and what the communication will look like.
    10. Check your agency agreement with your DFM – where model portfolio services are being used, does the responsibility for regularly checking suitability formally sit with you as the adviser?

    What about Brexit?

    ​​​​​​​What the impact of Brexit will be on the industry as a whole over the coming years is yet to be determined however it will have little or no impact on the MiFID II directive. The FCA’s stance is:

    ‘Following the result of the UK’s referendum on its membership of the EU, firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for MiFID II and other pieces of EU financial services legislation that are due to come into effect in the UK”

    Download our MiFID II whitepaper