Apex Supporting Clients/Asset Managers with MiFID II Challenges REGULATORY UPDATE: MARCH 2017

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1 Apex Supporting Clients/Asset Managers with MiFID II Challenges REGULATORY UPDATE: MARCH 2017

2 MiFID in a Nutshell The Markets in Financial Instruments Directive came into force in 2007 ( MiFID I ). Investor Protection Its primary goals were to foster harmonized functioning of financial markets, increase competition between new categories of trading venues and enhance Investor protection. Client Protection Market Access and Corporate Governance As an EU Directive, it required transposition into national laws with the option to raise standards locally. Trading and Executions MiFID II Offering Inducement Following the global financial crisis, the European Commission reviewed the MiFID framework and issued the MiFID II law and the MiFIR: MiFID II refers to a revision of the Directive effective from January 2018 through national laws; Advisory Process Product Governance The Markets in Financial Instruments Regulation (MiFIR) is the actual Regulation that will be directly effective without national transposition. This will ensure that a maximum harmonization framework is implemented. The Directive and Regulation now have fewer exemptions and the original scope of the MiFID has been expanded to cover a larger group of companies and financial products.

3 MiFID II Implementation Timeline February 2015 April/May 2016 April 2014 Open Hearing on Secondary Markets and Investor Protection Spring 2015 EC publishes Final Delegated Acts based on ESMA advice and approves technical standards JANUARY 2018 MiFID II/MiFIR are adopted by the EU Parliament Public consultation covering IST and ESMA guidelines MiFID II/MiFIR come into force May 2014 ESMA launches consultation process for MiFID II/MiFIR December 2014 ESMA final technical advice and consultation paper on draft technical standards published June/September 2015 ESMA submits regulatory technical standards to the EC JUNE 2016 MiFID II/MiFIR implementation deadlines postponed by a full year July 2017 MiFID II/MiFIR come into force

4 MiFID II Operational Processes Distribution & Products Trading & Investment Market Access & Corporate Governance Investor Protection Product Governance Trading Transparency Market Structure Derivatives Client Safeguard Organisational Requirements Corporate Governance Costs / performance disclosure Inducements Suitability & Appropriateness Client Classification and profiling Target Market Complex Products Products approval and monitoring process Trading Obligation Best Execution Transaction Reporting Trading Venues Commodities Commodity position limit & management control Safeguard the ownership rights of client assets Specific title transfer collateral arrangements Communication recording Record Keeping Transaction Recording New obligations & respective duties of the management body NEW Product governance. Distribution governance. Product documentation dispatch before the investment is made. Enhanced client information requirements (e.g. Type of advise, conflict of interests disclosure, etc.). NEW Algorithmic and high frequency trading (HFT)- Direct market access and Access to RM. OTF requirements. Commodity derivatives trading. Reporting services requirements. Product intervention. NEW 3rd country market Access Potential branch requirements for 3rd country firms when actively servicing retail clients. Actively servicing professional clients requires registration with ESMA.

5 MiFID II and Banking: Impacts PROVISION OF SERVICES MARKET EXECUTION CLIENT ACQUISITION Suitability Appropriateness Inducements Investment research Best execution Execution chain Client order handling Information to clients Client classification Client profiling Client agreements Inducements SALES AND MARKETING CLIENT REPORTING & TRANSPARENCY Instruments scope Information to clients Products Governance 3rd Country Access Reporting to Clients Transaction reporting Pre-Post trade transparency

6 MiFID II and Asset Management - Impacts EXEMPTIONS 1. Collective investment undertakings and pension funds (whether coordinated at Union level or not) and the depositaries and managers of such undertakings 2. Safekeeping as ancillary service only. PRODUCT GOVERNANCE EXECUTION IMPACT Product Design to identify target market and distribution strategy. Product Marketing with an Increased information provision towards distributors, including UCITS / AIFMD / PD / PRIIPS etc. Distributor: distribute the product within the target market identified by the producer and provide the manufactures with sales information. Monitoring: Review of product performances, adequacy of the market and product. ASSET MANAGERS Wealth and asset management firms must review the business impact of MiFID II and ensure capabilities to trade the required asset classes through the new venues such as OTFs. Policies and procedure more transparent and clear for clients. Increased threshold limits and controls around dark pool trading and algorithmic trading. Restrictions for commodity positions held on a group level. RECORDING OBLIGATIONS Obligation to record phone and electronic communications intended to result in clients transaction. Face-to-face meeting to be formalized and minuted. New policy, arrangements and monitoring must be available to clients. TRANSACTION REPORTING Increased transparency obligations on transaction and trade reporting. Basic reporting is kept, however updates are applied to transaction reports, portfolio report, holding statements, loss threshold report and cost & charges report. Pre-trade and Post trade transparency reporting. REMUNERATION Remuneration structures should be aligned with clients interests to take a holistic view in terms of incentives provided to staff and under consideration whether any incentives create a conflict of interest.

7 MiFID II: Focus on Fund Distribution COST & PERFORMANCE TRANSPARENCY TARGET MARKET Products and Services cost disclosure to be held pre- and post-sale, including transaction and research. Cost & Performance Transparency Target Market Inclusion of target market, client and product characteristics in the sales approach. Disclose cumulated effect/ costs. Risk-oriented performance scenario disclosure. MiFID firms manufacturing products for others to sell must define target market/ parameters pre-sale. INDEPENDENT ADVICE KEY TOPICS INDUCEMENT Option to assume formal regulatory status as independent advisor, leading to categorical prohibition of inducements, need to consider broad range of instruments, etc. Dual offering (independent vs non independent ) possible but Chinese walls are required. Independent Advice Inducement Prohibition to receive and retain monetary inducements (e.g. trailer fees) for providers of independent investment advice and portfolio management. Proof of quality enhancement when retaining inducements related to non-independent advice. Clients need to be informed about inducement details.

8 Our Client/Asset Manager Goals are Apex Goals Regulatory assessment to understand the challenges. Strategic assessment to support. Apex to initiate discussion with Asset Managers and client(s) to identify the needs/gaps in place under their current MiFID II project plans. Apex to outline strategic options and solutions to support MifID II implementation. Recording obligations. Transaction reporting. Distribution support.