The process of regulation is not designed to be easy for the actors involved. Companies do not have the luxury of waiting around for things to be done for them. Instead, they must take ownership early in the regulatory cycle to make sure that, when the rules are implemented, they can be executed to achieve their original purpose. As we have learned from Solvency II and PRIIPs, The implementation of new regulations works best when all those involved work in close cooperation together.
With these principles in mind, where does that leave stakeholders – asset managers, distributors, wealth managers and different service providers regarding MiFID II? We are now moving from the theoretical stage as set out by regulators into the implementation stage, where companies now have to ramp up their involvement rapidly.
MiFID II Product Governance raises new data exchange requirements between manufacturers on one side and their distribution network on the other. Add into this mix the Know-Your-Distributor requirement, as well as MiFID II Costs and Charges disclosures, and you have a perfect storm of data exchange and communication from one end of the distribution network to the other.
Zoning in on the issue of target market, this concerns the concrete communication by the product manufacturer of a clear target market classification for each of their products throughout their distribution network. Most of the time asset managers do not sell directly to end clients. Therefore this key piece of information – the target market classification – must end up with those distributors, platforms, and advisers who will end up dealing with the end clients. In return, the distributors need to feedback to the manufacturer investment sales that sit outside of the specified target market to facilitate end to end product governance oversight,
Local and European working groups have already agreed broadly how these target market classifications should work. Therefore we have a good idea of how that information should be transmitted through the distribution network. Here at Silverfinch, we plan to facilitate the efficient exchange of the target market data from asset management firms into the distribution network, as well as to facilitate the return exchange of target market exception reporting from the end of the chain back to the manufacturer.
While we still await clarification from the regulator as to the exact nature of the information that distributors should return to the asset managers, we do have an expectation that it will be exception based as opposed to full sales reporting.
However, the lack of clarification over one part of this process should not hold up progress on other more defined areas. Asset managers should now be categorising their funds and making sure that information is transmitted to their partners that deal with end clients. The distributors then should also examine the best way for them to return information back up the chain. No extra clarification from the regulator is needed on this process.
The key message: asset managers and distributors have to work together to make MiFID II a success, and they need to start working on it now.
What are you waiting for?
From the Silverfinch perspective we are busy readying the platform to facilitate various data exchanges that MiFID II brings to play:
- Target market and exception exchange
- Cost and Charges