Linda Gibson, Director of Regulatory Change and Compliance Risk, BNY Mellon’s Pershing:
The FCA will not be lenient on firms that fall behind on MiFID II compliance. But where a zero tolerance approach will apply to more straightforward areas – such as permissions and transaction reporting – the regulator will treat more complex aspects with a degree of flexibility.
Cost and charges
The FCA is expecting a diversity of approaches to costs and charges disclosure, reflecting the need for firms to operate in a way that best suits their client base. The regulator will closely monitor how information is presented to clients to ensure disclosure is suitable. It’s unlikely to take enforcement action on firms that can demonstrate they have made their best efforts to fulfil the requirements. Given the lack of an industry template and the wide range of potential solutions, the FCA recognises this is a complex area to get right.
The FCA is also expecting different approaches on product governance, with a multitude of potential options for sharing target market data. Manufacturers need to understand how their products are being sold and collaborate with distributors to ensure they are reaching the intended markets.
Firms must focus on the outcomes to ensure they fulfil MiFID II requirements. They must look at the underlying categorisation – execution only, advisory or discretionary – of their clients and ensure that only appropriate products and services are made available.
MiFID II has prompted a number of asset management and wealth management businesses to consider whether they want to continue to handle trade execution in house. Many are deciding to outsource trading, along with the extensive best execution requirements, to a third party.
Accountability for compliance with the MiFID II best execution regime will not necessarily fall on the front office, and will depend on a firm’s structure and business. All firms must update their best execution procedures and policies to evidence an approach that delivers the best possible results for their client base.
The MiFID II opportunity
MiFID II heralds change and change brings opportunity. Firms have significant opportunity to overhaul their operations and improve efficiency, risk management and client outcomes. Compliance initiatives should be streamlined and sustainable, but leave room for innovation.
Companies should use MiFID II to design business models of the future. Once the current phase of compliance preparation is embedded, firms should make use of MiFID II-enhanced budgets to position themselves to take advantage of revenue generating opportunities.