MiFID II is a revamped version of the Markets in Financial Instruments Directive that came into effect in 2007 and was part of the effort by the EU to create a single financial market for the EU bloc. MiFID II is designed to offer greater protection for investors and inject more transparency into all asset classes.  The review has more ambitious and structural aims: not only will it update existing rules to keep up with technological developments but will tackle what global policymakers saw as “under-regulated and opaque aspects of the financial system”.

The new rules cover virtually all aspects of trading within the EU. They reach across the financial services industry, from banks to institutional investors, exchanges, brokers, hedge funds and high-frequency traders. MiFID also seeks to push more trading away from the telephone and on to electronic venues, which come with better audit and surveillance trails.

MiFID II came into effect in the UK from 3 January 2018.

Many financial advisers (who do not hold client assets or money and do not do business outside of the UK) are currently classified as exempt from MiFID. These advisers are known as ‘Article 3 firms’. MiFID II has the same exemption, but Article 3 firms are now subject to a number of requirements derived from MiFID II including a range of authorisations, conduct of business and organisational requirements but not the whole range of requirements to which MiFID investment firms are subject.

Financial Advisers need to disclose all costs and charges that relate to their retail recommendations. Indications of expected costs and charges need to be provided pre-sale, and details of the actual costs and charges need to be provided post-sale, where applicable, on at least an annual basis. These need to be aggregated, and expressed both as a cash amount and as a percentage.

Financial Advisers (as distributors) will also need to consider the rules around information sharing between distributors and manufacturers. For example, advisers will need to gather information from manufacturers on the products on which they intend to advise; and they should consider how best to feed information back to manufacturers on how the product is meeting the needs of the target market in order to help with the manufacturer’s regular product reviews.

Financial Advisers who describe their advice as independent must assess a sufficient range of relevant products that are sufficiently diverse in terms of type and issuer to ensure that the client’s investment objectives can be suitably met. For firms providing investment advice to retail clients in the UK, this will generally mean being in a position to advise on all types of financial instruments, structured deposits and other retail investment products.

There are a number of changes to the suitability rules for advice on MiFID financial instruments and structured deposits provided by MiFID investment firms and Article 3 firms. One of the changes is a clarification that a recommendation to hold a MiFID financial instrument is subject to the suitability rules and will require a suitability report. Another change is that where firms are offering a periodic assessment of the suitability of their advice, this assessment must be carried out at least annually.  Firms must also ensure they assess whether equivalent investments or services, including less complex and those with lower costs, can meet their client needs.

MiFID II introduces new inducement bans for firms providing independent investment advice and portfolio management services. Firms to which the new MiFID II inducement bans apply may only accept certain minor non-monetary benefits. These may include ‘hospitality of a reasonable de minimis value’ provided that certain conditions are met.

Ward Williams Financial Services Ltd (the Firm) will continue to comply with all legislation that affects the way it carries out its business. The Firm already, under best practices, could comply with the majority of the legislation.  It has, however, taken appropriate steps to ensure that the documenting of this compliance is clear and unambiguous and remains in the clients’ best interests.

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