News

MIFID II - Myth vs. reality

by James Chu
24/11/2017
MIFID II - Myth vs. reality

On 3 January 2018, the financial services industry in the UK will wake up to the dawn of MiFID II.  The acronym stands for “Markets in Financial Instruments Directive”. The first iteration of MiFID came into force in November 2007.  The timing was ironic. Soon after, the global financial crisis occurred, and the EU felt the need to update the regulations.

A lot of comments have been made in the media on this new set of regulations. These include complaining about the complexity and wide scope the new rules will cover, possible increased inconvenience for investors, and how the EU ignores other regulatory regimes when financial markets become more globalised.

These comments all miss the point. MiFID II is set out to improve investor protection, improve market transparency, and make sure investment firms put clients at the core of their culture.

None of these regulatory objectives are new. They are in line with the 11 principles set out by the Financial Conduct Authority. The principles are known to all regulated firms in the UK for years.

Yes, MiFID II brings in additional requirements. But firms that have embedded the FCA principles should have no problem in embracing the changes. Crucially, they should be able to explain why some of these changes are good for investors.

Below are just two examples on how Reyker thinks MiFID II will benefit you as investors when they come into force in 2018:

Product development and monitoring

All firms that manufacture investment products need to define and describe for whom the products are designed. This is known as the “target market”, which needs to be defined during the product development process, not afterwards. Product manufacturers need to provide the information to distributors, such as financial advisers, to ensure the right target market is reached. This helps you and your adviser understand whether the product is right.

Markets and personal circumstances change, and the concept of target market will help you and your advisers make sure that the investment is still suitable after your initial investment.

Reyker already has a product monitoring service in place for our structured products. Advisers who recommend our structured products for our clients can subscribe to this service. Please contact us if you want to sign on.

Suitability and appropriateness

These are not new concepts. MiFID II clarifies further what types of investments you can buy without advice (for example: shares, bonds, regulated funds), and other types that you are required to fulfill certain appropriateness criteria and checks. These are in place to ensure you understand in what you are investing and the type of risks you take to get the rewards. Some firms state that it will cause you more inconvenience. We disagree. A firm that has the necessary permissions with the necessary system and process in place should have no problem in guiding you through the appropriateness checks or help you if you need advice.

MiFID II in Reyker

We have a dedicated working group in Reyker across all departments to look at all changes required in MiFID II. Watch for updated articles and announcements on our website. You can also contact us at investments@reyker.com if you want have questions relating to MiFID II, or (for advisers) want to sign up to our product monitoring service.

James Chu

James Chu

James is Director of the Markets and Investments Team at Reyker. A CFA member and industry expert, James specialises in Structured Products, derivatives and development of service offerings for Reyker. A face at most industry events, James is sure to provide insight into some of the most controversial topics in the market today.