Improving Investment Markets – MiFID II

Improving Investment Markets – MiFID II image

You wait for ages for consumer legislation…then two pieces come along at once! That’s a bit what it has felt like to be a financial adviser over the last 12 months. The current notifications about GDPR highlight the most impactful update on use of personal data for 20 years, but there is another equally important, but less heralded, set of regulations that has come into effect called MiFID II (Markets in Financial Instruments Directive).

For those who thought that Brexit meant the end of EU regulation, both MiFID and GDPR clearly show that we will continue to work with regulations that harmonise our business processes with those in Europe. As with GDPR, MiFID II is intended to enhance consumer protection and clarity as to how investment business is conducted. It covers a wide range of areas, many of which are already embedded in UK financial services regulations (so in part, this is about Europe catching up). Nonetheless, we have been working over the past 12 months to ensure that we have updated systems and document to reflect the new requirements.

The regulations covers all sectors in the financial and investment market and the main process areas affected are:-

  • independence under MiFID II;
  • Complaints handling;
  • Inducements and Adviser charging;
  • Disclosure;
  • Suitability;
  • Dealing and Managing;
  • Client Agreements;
  • Knowledge and Competence;
  • Product Governance;
  • Structured deposits;
  • Role of the Compliance function in firms.


It’s such a wide ranging set of regulations we can’t cover all of MiFID II’ effects, but some of the issues that might affect our clients directly are noted below for your information.


Independence - Ethical Futures will remain an ‘independent’ financial adviser with a focus on the specialist sector of ethical and sustainable investments. In ensuring that we maintain this status, the key consideration is just that we undertake to consider all relevant investment product solutions under this category. We always have done this and will continue to do so.


Disclosure and client agreements - We have been reviewing some of our initial ‘disclosure documents’ which summarise our terms of business. The intention here is to clarify matters relating to the nature of services that we provide and in particular to confirm when we undertake to give clients a periodic review of product suitably, as part of an ‘on-going’ service. Next time we are in contact, we shall issue you with updated documents, but they can also be accessed on out website.


Costs of services – where a periodic review of suitably is given on discretionary services, we have to ensure that aggregated costs of advice are accurately reported to you. This may be achieved though the reports of the recommended discretionary services or in our own correspondence with you.


Reporting by discretionary services – many of our clients will have investments managed on a discretionary basis by a recommended investment manager. The MiFID II regulations require further clarity is introduced in the reporting of a number of aspects of this services, these include:

  • A move to quarterly reporting. The intention is to keep you briefed on performance, but we understand that this might result in too much paper for some clients. Please note that we may be able to arrange a summary report or restrict reporting to ‘online’ only for you. If the paper work gets too much – let us know and we’ll see what we can do.
  • Notification of a 10% fall in value since the last quarterly report. This has to be communicated to you within 24 hour period of the fall occurring. Although reporting of such a fall is a requirement, no specific action is required by you. We do monitor investments and would undertake to alert you if we felt there was a real problem or trend in performance – that was not just a result of general market movements. Please note that this only applies to discretionary portfolios.
  • Disclosure of aggregated costs – as noted above, managers are now required of give you summary of aggregated costs. Discretionary management involves a number of costs; these include the management services of the company but also custody and platform fees as well as the costs of any underlying funds used in the portfolio. In addition to this, there may also be sundry other transaction costs which must be disclosed. Managers may also disclose an ongoing cost that Ethical Futures have agreed with you to charge to the service in respect of our on-going services. If not, we shall disclose these separately.


We hope that this summary gives you an insight into changes that you may see in disclosures are reporting in the future.  As ever, if you have any question – just let us know.

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