With the launch of MiFID II on January 3rd 2018, many firms had concerns about the impact it would have on the industry and markets in general. Would firms still be able to function or would the markets grind to a halt?
The outcome, as we enter into Q2 of 2018 is that things have been fairly stable and all the fears akin to Y2K (for those who were around at the time) , have subsided , at least for now.
Most of the media focus has been on what some deemed the surprising increase in costs investors are now aware that they are exposed to. Many articles declared that investors were now exposed to double , if not triple the costs than they were a year ago. This is, as those in the industry will know, very misleading. Costs themselves have not changed, they have just become more transparent. This is what regulators wanted and they have succeeded in their endeavours.
That said, the repercussions of this will be feeding the fire of the active versus passive debate. As if that was ever needed. Active funds are going to be showing higher transaction costs and will need to display value going forward, again a win for the regulators.
So what next ?
Well the product governance side of MiFID II had two objectives. Firstly, transparency on costs & charges, ensuring investors had a clear picture of what they were paying for their investments, and secondly product suitability requirements that require manufacturers of products ensure that the right product was purchased by a suitable investor, through whatever distribution channel it was purchased.
This is the phase 2 element of MiFID II which is now upon us. Distributors in Q2 will need to start reporting back to manufacturers on who bought their products and if any were in the negative target market , i.e. was the product sold to somebody it was explicitly not intended for.
There are many items still to be clarified by the working groups the industry has created to provide guidance to firms on how they can fulfil these requirements. Due to the level of sales data that can be reported, it is still unclear if all markets will align to either full reporting or exceptions only reporting. Also , how will this data be transferred up the chain of investment from end distributor through wealth manager, through platform, and on to the manufacturer.
Working groups like TISA have been working on best practice guidance , and I would recommend anyone who has still to decide on an approach to visit their website http://www.tisa.uk.com/ and download their best practise guide.