MiFID II Academy: Information and reporting to clients. Floortje Nagelkerke 23 February 2016

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1 MiFID II Academy: Information and reporting to clients Floortje Nagelkerke 23 February 2016

2 Timing: MiFID II / MiFIR 2 July MiFID II and MiFIR entered into force 19 December Level 2 Consultation on technical standards commenced. ESMA provided final report on technical advice to the Commission on delegated acts 28 September Level 2 regulatory technical standards submitted to Commission 11 December Level 2 implementing technical standards submitted to Commission 3 July Member States to adopt and publish measures transposing MiFID II into national law 3 January 2017 Original MiFID II and MiFIR Level 1 and Level 2 implementation date 3 January 2018 MiFID II and MiFIR Level 1 and Level 2 implementation date (delayed from 2017) Consultation period Consultation period 1 August Level 2 Consultation on advice on delegated acts and Discussion Paper on technical standards closed 2 March Level 2 Consultation on technical standards closed 6 June Consultation by Ministry of Finance of implementation of MiFID II into the AFS 2

3 Dutch transposition MiFID II implementation Article 93 MiFID II: Member States shall adopt and publish, by 3 July 2016, the laws, regulations and administrative provisions necessary to implement this Directive Consultation Ministry of Finance July 2015 closed on 6 July 2015 Lot of the detail will be implemented into the Besluit Gedragstoezicht financiele ondernemingen Wft All RTS/ITS will be regulations which will have direct effect into Dutch law How to keep informed: AFM MiFID review page

4 Information to clients

5 Information to clients general principles 1 Source of legislation: Article 24 (3) MiFID II Article MiFID Implementing Directive Amendments proposed by ESMA: final report 19 December 2014 Applies to all EU firms, their EEA branches and non-eu branches No amendments to the basic rule but scope is extended: applicable to any client (retail, professional and ECPs) taking into account the nature and the business of the client Information provided to clients should be: fair, clear and not misleading marketing communications must be clearly identifiable as such Appropriate information in good time regarding Investment firm/services Financial instruments/investment strategies/execution venues Costs and related charges 5

6 Information to clients general principles 2 Information provision must be: In comprehensible form In such manner that clients can make informed investment decision The information may be standardised When investment service is part of financial product subject to other EU legislation, the MiFID II rules regarding provision of information do not apply in addition Package: inform whether it is possible to buy the different components separately and shall provide for a separate evidence of the costs and charges of each component and an adequate description of the different components of the agreement or package and the way in which its interaction modifies the risks ESMA cross selling guidelines 6

7 Information to clients general principles 3 Article 27 MiFID Implementing Directive to be amended to include: (Potential) Retail clients: shall always give a fair and prominent indication of any relevant risks when referencing any potential benefits of an investment service or financial instrument; shall use a font size in the indication of relevant risks that is at least equal to the pre-dominant font size used throughout the information provided, as well as a layout ensuring such indication is prominent; shall be consistently presented in the same language throughout all forms of information and marketing materials that are provided to each client, unless the client has accepted to receive information in more than one language; and shall be up-to-date, relevant to the method of communication used. 7

8 Information to clients general principles 4 Article 27 MiFID Implementing Directive to be amended to include: - (Potential) professional clients: shall not reference any potential benefits of an investment service or financial instrument without also giving a fair and prominent indication of any relevant risks; shall not disguise, diminish or obscure important items, statements or warnings; and shall be accurate and up-to-date, relevant to the method of communication used. - Additional information on future performance: the information provided should be based on performance scenarios in different market conditions (both negative and positive scenarios), and should reflect the nature and risks of the specific types of instruments included in the analysis. 8

9 Information to clients: financial instruments Information must include appropriate guidance on and warnings of the risks associated to the financial instruments or particular investment strategies Whether it is intended for retail or professional clients (information on categorisation and opting up/down) Taking into account target market set in the product governance process. Article 29 and 30 of MiFID Implementing Directive not amended? Article 31 of MiFID Implementing Directive should be amended: Incl. functioning/performing of financial instruments in different market conditions Description disinvestments (impediments and restrictions) Article 34 of MiFID Implementing Directive should be amended: Description of components and interaction relating to risks If guarantee/capital protection: scope and nature Refer to KIID/PRIPP: costs and charges description sufficient 9

10 Information to clients: investment advice Dependent or independent: clear and concise description of: nature and type of advice nature and type of restrictions that apply prohibition to receive and retain inducements If both types will be provided: explanation on scope of both not presenting as independent Based on broad or more restricted analysis of different types of financial instruments; in particular whether close links exist between investment firm and offeror of financial instrument range of financial instruments, incl. relationships with offerors/providers description types/number analysed per each type of instrument/how independent/selection process For each type, the proportion of financial instruments issued or provided by entities not having a link Whether or not it will provide periodic suitability assessment : Frequency/extent/conditions/re-assessment information/communication 10

11 Information to clients: costs and charges Information on costs / charges: Point of sale: services and financial instrument method of payment (incl. disclose inducements) aggregated so client understands the overall cost and cumulative effect on return (with itemised breakdown on request): upfront, ongoing, exit Post sale disclosure: ongoing relationship Timing: provided in good time and annually post-sale Professional investors may agree limited information, except in case of investment advice or portfolio management, or financial instruments concerned embed a derivative If ECP wishes to receive more limited information but will on-sell a product to its clients (including retail clients), cannot elect to receive more limited information 11

12 Reporting to clients

13 Reporting to clients general obligation Article 25 (6) of MiFID II: provide adequate reports on the service provided confirms existing reporting requirements executing orders, portfolio management and client assets extends them to include: periodic communications (taking into account the type and complexity of financial instruments involved and the nature of the service provided to the client) investment advice: suitability statement Reporting to professional clients: trade confirmations (T+1) same retail content in reports Scope is extended to include ECPs: able to agree with ECP on content and timing 13

14 Reporting: portfolio management Scope: retail and professional investors Report should give a fair and balanced review of activities and performance of portfolio Reports: min. quarterly intervals covering activities during that period No requirement to provide reports where clients have access to online system that is a durable medium System easily accessible Evidence access by client once a quarter Obligation to report: i Overall value depreciates by 10% with multiples of 10% For retail: leveraged financial instrument or contingent liability: initial value depreciated by 10% with multiples of 10% On instrument-by-instrument basis 14

15 Reporting: client assets Reports on financial instruments and funds: min. quarterly intervals More frequently upon request at reasonable commercial cost Reports should include: statements to identify protected assets assets subject to liens market / estimated value of assets and indication a lack of a market price is likely to be indicative of a lack of liquidity. This shall be done on a best efforts basis 15

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