MiFID II Reference Guide

Introduction

Following the introduction of the new MiFID II reporting regime, there are several key topics that impact Ascentric, our relationship with you and your responsibilities as advisers and DFMs. These include reporting, data to be captured and in some cases obtaining registration to continue trading. Some actions have been required for being compliant.

Click here to read our checklist to see if you have everything in place to work with us.

When a transaction in an Exchange Traded Instrument (ETI) is executed on the platform we report data items back to the FCA. Under MiFID II we will need to report against 65 data items, an increase from 30.

The frequency of reporting is not changing, it will remain the close of business the following day the transaction was made.

When someone other than the client, for example a DFM or an adviser with discretionary permissions orders a transaction, they must report it. But they may pass on their reporting obligations to the Platform Operator – this is known as 'transmission'. Ascentric will take on this reporting and to accommodate this we have 'Transmission Agreements' in place with DFMs and advisers with discretionary permissions.

Ascentric will need to capture some additional data items for reporting. If our system does not have the data required to create the reporting entry, then the transaction will be blocked. Ascentric has been gathering this data. This includes:

  • LEI
  • Decision Makers
  • National Identifiers
  • Discretionary Models

Under MiFID II there is a new rule where investors or discretionary advisers who are legal entities, known as ‘non-natural persons’, will need a Legal Entity Identifier (LEI).  When Ascentric reports transactions in Exchange Traded Instruments (ETIs) we will need the LEI from relevant investors/advisers. 

Legal entities who need an LEI must have one in place to continue to trade in ETIs from 3 January 2018. Ascentric will not be able to execute transactions in ETIs, or transfer a reportable asset to a new owner, for a trust, charity or corporate client who does not have an LEI.

It is the responsibility of the legal entities themselves to make sure they have their LEI in time and to renew it annually.  Trusts, charities and corporate clients that wish to trade in Exchange Traded Instruments (stocks, shares, Exchange Traded Funds etc.) will need to buy their LEI for a fee of about $200 or GBP equivalent £158 (then ongoing $80 per year).

For details and registration information: FCA LEI 

Individuals or 'natural persons' (i.e. human beings, not legal entities) will be identified by their national identifier. For UK nationals this is their National Insurance Number.

A new MiFIR requirement is to identify 'Decision Makers' (someone other than the client  who makes the decision to execute the transaction) by their national identifier and Ascentric has been gathering that data from those affected.

Where a transaction is ordered by DFMs or advisers with discretionary permissions, they must report it. However, DFM firms and advisers with discretionary permission may pass on their reporting obligations to the Platform Operator – this is known as ‘transmission’. Ascentric will take on this reporting and to accommodate this we have ‘Transmission Agreements’ in place with DFMs and advisers with discretionary permission.

Pre-sales – Clients must be provided with an illustration of all the costs and charges (i.e. manufacturers' charges + platform fees + adviser charges) they would be expected to pay. Ascentric is updating its existing pre-sales illustration tool to include all costs and charges and to show the aggregate figure. Advisers with access to this tool will be able to produce a MiFID II compliant pre-sales illustration. The current SIPP illustration tool will remain in place separately.

Post-sales – Clients must be provided with a new Annual Summary of Charges showing an aggregate figure for all the costs and charges that they have actually paid. Ascentric will provide this each calendar year, starting with the first report in 2019 for 2018.

Ascentric currently provides clients with a six monthly Periodic Valuation Statement. Under MiFID II this will change and Ascentric must provide clients with quarterly statements.

Before MiFID II, manufacturers were not required to formally define which type of investor their asset is intended for. Under MiFID II manufacturers will need to define the Target Market for each of their assets. The manufacturers must define a 'Positive Target Market' (the right types of investor). If appropriate, they must also define a 'Negative Target Market' (investor types to whom the asset should not be sold).

The Target Market attributes (or categories) are being defined by industry bodies.

The Target Market attributes must be provided to advisers and Ascentric will assist with this where we can.

Advisers will still need to assess assets and clients to make sure they are suitable. They must not rely purely on the Target Market details. Manufacturers must also make sure their assets are being sold within their expectations, with sales information from advisers to do this.

Manufacturers may require Ascentric to report to them when an asset is sold to a client who is 'Outside the Positive' or 'Inside the Negative' Target Market.

MiFID II expands the definition of a Complex Asset. This means a greater range of assets are considered complex. This is designed to increase protection for non-advised clients wishing to invest where they may not have enough knowledge and experience.

Non-advised clients selecting to buy or sell a Complex Asset already completed an Appropriateness Questionnaire. Under MiFID II this questionnaire will apply to more products and there will be additional questions. When answers indicate a lack of knowledge or experience, a risk warning message will repeat that investors ought to take financial advice before proceeding.

Ascentric will need to hold the data below and we have been contacting those affected.

Legal Entity Identifier – Ascentric will need the LEI that is required for all legal entities or 'non-natural persons'. Trusts, charities and corporate clients that wish to trade in Exchange Traded Instruments (stocks and shares, Exchange Traded Funds etc.) will need to buy their LEI for a fee of about $200 or GBP equivalent £158 (then ongoing $80 per year). For details and registration information: FCA LEI

Decision Makers – for firms, advisers and DFMs that have discretionary permissions on an account, at the point of transaction Ascentric will need the name and National Identifier of the person within that firm who makes the decision to buy or sell the assets (only for Exchange Traded Instruments).

National Identifier – Individuals or 'natural persons' (i.e. human beings, not legal entities) will be identified by their national identifier. Where Ascentric doesn't currently hold this data about decision makers on discretionary accounts, we will need to obtain this. For UK nationals this is their National Insurance Number.

Discretionary Models - Ascentric will need to be able to identify discretionary transactions and a mixed discretionary/advisory portfolio will no longer be allowed. Every existing Model Portfolio must be marked as either 'Discretionary' or 'Advisory'. Using the Model Portfolio cloning functionality, advisers will need to have split their clients where they had a model with a mix of discretionary and advisory clients. 

The current MiFID I Best Execution regime is being strengthened under MiFID II. We will be updating the current Ascentric Best Execution Policy accordingly and will make this available to view in due course.

Under MiFID II we must produce an annual Venue Report of Ascentric's top trading venues and volumes. This will be available on the Ascentric site.

DISCLAIMER

This guidance is provided at a general level only, to help provide background information about the changes being made by Ascentric(/IFDL). This information is not intended as advice about the regulatory changes or their implementation. For this each organisation should seek their own legal advice. Please refer to the FCA MiFID II guidance and policy statements for the UK. 

 

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