The second Markets in Financial Instruments Directive came into force on 3 January 2018. It promised widescale changed to financial services marketing – among them changes to client reporting, governance and costs.
Nearly two years after the legislation came into effect, we look at what has changed. What impact has MiFID II had on financial services marketing?
What has MiFID II meant for financial services?
In advance of MiFID II coming into force, we looked at what the legislation covers and what firms needed to do to comply.
The big changes were around:
- client reporting – with all clients now needing to be informed if the value of their portfolio drops by 10%
- best execution (the duty of an investment services firm, such as a stock broker, executing orders on behalf of customers to ensure the best execution possible for their customers’ orders)
- more prescriptive requirements around product governance
- aggregation of costs and charges
- marketing material for professional clients – which is now treated as a financial promotion
At the time, the FCA said that ‘MiFID II is a wide-ranging piece of legislation and, depending on your business model, could affect a wide range of your firm’s functions – from trading, transaction reporting and client services to IT and HR systems’.
One of the fundamental differences between MiFID and MiFID II is that now, ‘All information, including marketing communications, addressed by the investment firm to clients or potential clients shall be fair, clear and not misleading. Marketing communications shall be clearly identifiable as such.’
This applies equally to retail and institutional investors. In other words, communications to professional investors will become ‘financial promotions’ and be regulated as such.
Since it came into force, MiFID II has caused debate, with the disclosure requirements in particular coming in for criticism. At a conference in June 2018, FCA Chief Executive Andrew Bailey had to address the ways that perceived shortcomings, both in MiFID II and PRIIPS, were being tackled.
What effect has it had on firms?
The range of new and enhanced requirements under MiFID II has meant significant changes for financial services firms.
- Processes have had to be adapted. In particular, this has impacted the creation and marketing of new financial products, reporting and the ways firms deal with conflicts of interest.
- This has had an unsurprising impact on costs. Research by a consultancy firm, IHS Markit, estimated that financial firms will incur costs of around $2.1 billion, $1 billion of which will be spent on IT upgrades, to comply with MiFID II.
- Marketing to and via affiliates and advisers has had to change, with rules around transparency and reporting updated. Regulated firms have had to revisit their approach to adviser hospitality and the ways they promote their services and products via adviser websites. Our blog on whether you need to change your adviser marketing under MiFID II has more on this.
- Your charges and fees disclosures need to be more detailed under MiFID II. Marketing and communications need to include far more detail on this than they did previously.
- All marketing and communication materials and financial promotions need to be ‘fair, clear and not misleading’ – and these rules apply whether the communication is for retail or professional clients.
What actions should you take to comply?
Although MiFID II has now been in force for nearly a year, there are still steps firms can take to ensure their response is up to scratch.
- Many of the changes brought about by MiFID II regulation relate to promotions, communications and marketing. It’s therefore essential that your Marketing team understands the details and implications of the regulation; work with your Marketing colleagues to ensure your firm complies.
- Revisit your approvals process; it may need updating to reflect the new requirements. You may also need to strengthen your processes around record keeping to ensure you create a compliant audit trail. Taking a checklist-based approach may help.
- Automating some of your approval processes can help to prevent regulatory compliance breaches and may be worth investigating.
- Make sure everyone responsible for writing and producing marketing content is aware of the changes. As a Compliance team, you can help your Sales and Marketing colleagues to understand what’s needed so they can write content you can approve first time.
- Make it easy for the business to find accurate data. The fees and charges disclosure requirements are a challenge for many firms. The amount of data that needs to be updated and presented accurately on a regular basis creates substantial obligations.
Online slide libraries can help, locking down pre-approved content and automatically pulling through updated statistics, charts and other corporate information into all slides where they appear. This sort of automation could be very helpful in enabling you to meet your obligations here.
Compliance with MiFID II isn’t straightforward. To capture the various actions firms need to take, try our financial promotion advice.