Wide ranging reforms to the European financial services industry finally start to be implemented, today, 3 January. Yet the new rules are sufficiently vast and complex that it could take months or even years, before the changes are fully embedded.
While in some areas, the demands of the legislation are clearly prescribed and specified, it is likely to become increasingly evident over the coming months that there are several areas where more guidance will be required. This could result in more changes as some of the requirements are by no means as closely defined as the regulations covering, for example, Transaction Reporting.
For example, ESMA has given guidance that clients who have assets managed under a discretionary mandate should be notified when their portfolio falls by 10% or more against the value in the most recent Periodic Valuation statement – the much discussed ‘10% rule’. However, the duty to report appears to fall on the person exercising the discretion – i.e. the Discretionary Investment Manager (DIM).
The issue is that in most cases they will not be able to meet the requirements without assistance, simply because they are unlikely to know the client’s full circumstances or even their identity. It is only a client’s adviser who is likely to have all the detail. Depending on the information held by each party, DFMs, advisers and platforms, will have to agree how they, and ultimately the investors, are to be alerted to relevant depreciations in their portfolio.
Sarah continued: “Platforms, such as Ascentric, are ideally placed to help DFMs and advisers by flagging any 10% falls in value for further investigation. However, in the absence of hard and fast rules this means that it is likely that each platform has developed different systems and definitions for the 10% calculation and the way the fall is reported. This inconsistency of information for advisers also applies to the clarity on cost and charges, which too, looks to vary as providers use different bases for the calculations. With Target Market definitions and sales reporting: there is plenty more to do before the requirements are firmly nailed down.
The identification and adoption of best practice across the industry is going to take some time and there is undoubtedly a lot more to do before the MiFID II regime can be considered embedded. Advisers will need to continually monitor developments over the next two years, at least.”
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