I attended the PIMFA MiFID II Conference on Tuesday 24th October, and it was pleasing to hear some very positive and complimentary feedback from a number of clients about our software solution, the advice and support we have provided and our whole MiFID II delivery.

It was surprising and worrying to hear some of the comments expressed by some speakers and panel members, as well as questions from the floor during the networking breaks. Even after Stephen Hanks from the FCA had reiterated the clear message of ESMA and the FCA ‘No LEI no trade’, some people were still suggesting that the regulators would have to offer some forbearance and firms would be allowed to trade and then transaction report when they did not have the necessary identifiers. It was also suggested during the panel discussion that as long as you were able to transaction report from 3rd January then you could work on other aspects of MiFID II compliance during 2018. I think it is clear, during 2018, the FCA will initially focus on Transaction Reporting but they will also focus on those firms who they feel have not made adequate efforts in other areas. They may not issue fines, but they are likely to expect firms to take retrospective corrective action.

It is not surprising that the firms who have worked hard to be ready, actively progressing their MiFID II workstreams, putting in place policies and procedures and gathering data are the very same firms that are complimenting us. We have always said that MiFID II was a far bigger project for you, our user firms, than for us. We fully recognise the huge burden of the work MiFID II has imposed, far more than just taking and testing multiple releases and populating additional data.

We hosted our Annual Client Conference, on 21st June 2017 at the Leicester Tigers Rugby Ground Conference facility, Leicester. The focus of this conference was to discuss new developments in the MiFID II programme & share an overview of our product roadmap.

It’s been a long journey, we held our first MiFID II client workshop over 2 years ago, so as we approach the final run in, where are we?

LET US FIRST CONSIDER WHERE YOU NEED TO BE IN TERMS OF SOFTWARE AND DATA DURING 2018; HOW CORRECT ARE THOSE SUGGESTING SOME THINGS WILL NOT BE REQUIRED UNTIL LATER IN 2018, WHAT ARE THE 3RD JANUARY DROP DEAD REQUIREMENTS?

1. TRANSACTION REPORTING

No one disputes that this is a must have on 3rd January. The transaction Reporting functionality within our orders module is available, but still being refined for certain scenarios. The biggest task for firms is to make sure they have all the necessary data; LEIs for counter parties, some clients and some 3rd party decision makers, NPI data for other clients and 3rd party decision makers and also for staff who can be decision makers or executors. We and Unavista are implementing validation to ensure integrity and accuracy of data. Make sure your NPI data conforms to that laid down by ESMA. If you are unsure I would point you in the direction of:

• RTS22 Article 6 Designation to identify natural persons.
• RTS22 Annex 1 Table 2 Details to be reported in transaction reports (which includes some details about Names)
• RTS22 Annex 2 National client identifiers for natural persons to be used in transaction reports
• ESMA/2016/1451 Final Report (Guidelines on transaction reporting, order record keeping and clock synchronization under MiFID II), in particular 2.1.4.4 Procedure to generate CONCAT
• ESMA/2016/1452 Guidelines (Transaction reporting, order record keeping and clock synchronisation under MiFID II), in particular 5.5 Identifiers for parties. In addition, 5.8.2.3 and 5.8.2.4 have further clarification regarding dual nationality.

ANSWER TO QUESTION 2 SECTION 15 OF ESMA Q&A ON MIFIR DATA REPORTING

There is still uncertainty regarding which corporate actions are reportable and who, in some cases, the counterparty to the corporate action is (i.e. who is the other side to your client buyer/seller). How do you plan on justifying and documenting which corporate actions you will transaction report? How will this be communicated to relevant staff? Will you follow an industry body view on which events to report? If so which, PIMFA, IA, BBA, SCAF? To me this is definitely a case where it is better to be one of the heard.

2. 10% DEPRECIATION

Wouldn’t it be great if you never needed this, but who can say with certainty no client’s portfolio will drop by 10%on 3rd January; I would suggest this is also a must have immediately. Don’t forget the curve ball thrown in by ESMA’s Q and A and FCA’s comments regarding “how firms should account for different pools of cash when computing the 10% fall”. It may be that correctly identifying from which ‘pool’ an investment is made will never make a material difference to whether a client needs to be informed of a 10% depreciation, but it is something you need to consider.

3. COST AND CHARGES DISCLOSURE

Clearly from an ex-ante basis this must be available from 3rd January. For ex-post, you can determine when your first ex-post disclosure is issued, it could be as late as 02/01/2019.

ESMA’s Q&As (section 9 Q21) includes the statement “Where an existing ongoing relationship between a firm and a client ends during 2018, ESMA expects firms to provide information at that period end”. The intention of this statement is not totally clear. Will a client leaving trigger you to produce a cost disclosure as part of a closing statement or will you produce it at the time you would have if the client had not left? If the former, who knows when your first ex-post cost disclosure will be required.

To be able to provide accurate ex-post cost and charges you must start to capture all charges from 3rd January. You will already be doing this for most costs, but it is important that from 3rd January you are capturing all the implicit costs, the initial charge on dual priced funds, dilution levy, any overseas transaction costs, mark up on FX etc.

You will also need product costs by the time you produce your ex-post cost disclosure, so if you do not have these for all products initially (and some may not be readily available initially), be aware of any products held by leavers and make sure you get the necessary data and set up the applicable product costs if you plan to include with a closing statement.

4. TOP 5 VENUES

RTS28 requires firms to publish reports showing their top five execution venues for different classes of financial instruments. The first report covering 2017 should be published by the end of April 2018.

You will need to ensure you can gather and present the 2017 data in the prescribed format for the 30th April 2018 deadline. You will also need to make sure you are capturing the additional order execution data (active/passive/directed) from 3rd January 2018. Correct RTS28 classification of stocks will be required for April 2018.

5. PRODUCT GOVERNANCE

Firms will have to have in place policies and procedures for ensuring they comply with the product governance requirements. ESMA have stated “Products which were manufactured before 3rd January 2018 but which are distributed to investors after 3 January 2018 should fall within the scope of product governance requirements applicable to distributors”.

How this will translate into business processes and systems functionality will very much depend on the products that you distribute and your client base; do you distribute products for which some of your clients would be outside the target market?

If you are distributing products which have restricted target markets then these should be flagged so that, from 3rd January, you can implement vetting rules to prevent undocumented sales outside the target market.

Do you approach 3rd January in fear and trepidation or are you quietly confident? I approach with a mixture of both. You will find in our latest newsletter an article by Matt Gunnell that gives you a ‘Status’ report on where we are in terms of software development for MiFID II; what we have completed and what is still outstanding. He also outlines some of the further development we might undertake in 2018. 3rd January is the ‘live date’ but it will not be the end of the journey for you or us.