Post on 25-Jun-2020
3rd PwC MiFID II Breakfast
Regulatory update & key business challenges
www.pwc.lu/mifid
Regulatory Advisory Services
October 2015
1 Update on Level 2 Regulation 1
2 PwC MiFID II Client Survey 3
3 MiFID II recordkeeping & disclosure challenges 8
4 Business Challenge 1 – Client interaction 11
5 Business Challenge 2 – Recordkeeping & data 14
6 Business Challenge 3 – Reporting & disclosure 17
7 Conclusions – C-Suite Blocker 23
Contents
PwC
October 2015
Update on Level 2 RegulationSection 1
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
1
PwC
October 2015
Summary of recent events & Level 2 updates
Section 1 – Update on Level 2 Regulation
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
2
Dec 2014
Sept2015
Sept2015
? Level 2 Delegated Act of EU Commission
Joint letter of UK, DE, FR to EU Commission
June2015 Statement of EU Parliament to EU Commission
Publication of Level 2 RTS for MiFIR
ESMA Technical Advice on MiFID & MiFIR
PwC
October 2015
PwC MiFID II Client SurveySection 2
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
3
PwC
October 2015
Programmemobilisation
Impact Assessment
Strategic Options
Gap Assessment
Implementation
When will you start with the different project phases?
Q3 2015 Q4 2015 Q1 2016 Q2 2016
3rd PwC MiFID II Breakfast
2 PwC MiFID II Client Survey
4
Source: PwC Luxembourg MiFID II Client Survey
PwC
October 2015
How will you organise and staff your project?
Section 2 – PwC MiFID II Client Survey
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
5
28%
10%
28%
16%
8%
10%
Resource Types
Business
Legal
IT
ProjectManagement
Compliance
External
Size: Between 12 to 25 locally
Setup: Primarily • cross-divisional/business
or • group-wide
Combination with other projects:
• PRIIPS• Client Segmentation• Pricing Strategy
Source: PwC Luxembourg MiFID II Client Survey
PwC
October 2015
3.84
3
3.43.6
2.2
3.6
4
Product Design Service Offering ClientSegmentation
Distribution Reporting Funding andLiquidity
Operations &Control
Technology &Data
Impact from 1 (no) to 5 (radical)
Where do you consider the greatest impact?
Section 2 – PwC MiFID II Client Survey
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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Source: PwC Luxembourg MiFID II Client Survey
PwC
October 2015
Where do you expect the greatest challenge/areas of concern?
Section 2 – PwC MiFID II Client Survey
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
7
4 4
4.4
4
2.2
3.4
3.8
Regulatoryuncertainty
Timely strategicdecision making
Implementationtimeline
TechnologyChanges
Stakeholder buyin and support
Projectresourcing/budget
Third partydependencies
Impact from 1 (no concern) to 5 (significant concern)
Source: PwC Luxembourg MiFID II Client Survey
PwC
October 2015
MiFID II recordkeeping & disclosure challenges
Section 3
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
8
PwC
October 2015
MiFID II disclosure and recordkeeping mapping
Section 3 – MiFID II recordkeeping & disclosure challenges
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
9
B2CRetail Clients
DataReport
Record
Target MarketInformation
Legend:
Target MarketFeedback
B2CRetail Clients
Client records
Orders & transactions
Position records
Product information
Service information
Client orders
Client Portfolio Reporting
B2BProfessionals & Nominees
Service/ Transaction information
Client Reporting
MiFID Firm
Compliance Report
Risk Management
Report
Internal Audit Report
COI records
Inducementrecords
Complaints records
Personal transactions
CSSF
TAF
Brokers & Counter-parties
Product Manu-
facturersClient
Transactions Reporting
ESMA
ARMs
Governance ReportingTAF
PwC
October 2015
MiFID II disclosure and recordkeepingScrutiny increases data and communication challenges
Section 3 – MiFID II recordkeeping & disclosure challenges
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
10
Client Communication
Regulatory reporting
Data sources
Recordkeeping
Transactionreporting
Compliance, COI, Inducements &
complaints
The investment firms are subject to the pre-existing governance reportings(compliance, risk, internal audit) as well as to transaction and execution reporting to National Competent Authorities for legal entity and branch(es) respectively.
Regulatory disclosures
The internal governance is enhanced requiring registers and records to support the management of potential conflicts of interest, inducement justifications as well as the documentation of the adequacy of representativeness in case of independent advice.
Internal compliance
Transactions are subject to best execution and subject to the changes in market infrastructure introduced by MiFIR. Additional disclosure of clients concerned and intermediaries.
Transactions
KeyBusiness
Challenges
The client interactions are subject to extensive logging and recordkeeping duties. The service level agreed with the client
determines the governance duties.
Communication
The investment firm will be required to obtain product information, cost and
inducement disclosures/certifications as well as best execution confirmations
from its suppliers (products), brokers and business partners.
Data
MiFID II has extended the requirements to log client
interactions relative to service delivery and orders/transactions, to review suitability and portfolio
value and to record internal governance.
Recordkeeping
PwC
October 2015
Business Challenge 1 – Client interaction
Section 4
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
11
PwC
October 2015
Client profiling & service contractQualification of services determines governance duties
Section 4 – Business Challenge 1 – Client interaction
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
12
Accountable
• Client assessment: Record-keeping of (1) client categorisation, (2) client agreements & (3) assessment of suitability & appropriateness
• Communication with client: Record-keeping of the investment advice to retail clients, i.e. (i) the fact, time and date that investment advice was rendered, (ii) the financial instruments that was recommended and (iii) the suitability/appropriateness report provided to the client
Storage obligation
• At least annual suitability review (mandatory for portfolio management & if chosen in case of investment advice), frequency to be increased depending on (1) the risk profile of the client and (2) the type of financial instruments recommended
• At least annual review of the client profiling • Review of the advisory contracts upon any material change in the fin. instruments
analysis process and/or in the selection process & product shelf (if independent advice)
Frequency
75%
Degree of review New Change Adjustment
Manage-ment
B2BBroker & CP
Manu-facturer
RiskCom-
pliance
MiFID Firm
PwC
October 2015
RecordingsClient interactions are subject to extensive logging
Section 4 – Business Challenge 1 – Client interaction
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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Accountable
• Records of the communications/conversations in : - a durable medium - readily accessible and available for clients on request
• Retention of the records during 5 years for clients and up to 7 years for authorities (from the date the record is created) AND national archiving/recording rules
Storage obligation
• Any time a communication/conversation relating to OR at least/intended to result in transactions concluded on own account and the provision of client order services related to the reception, transmission and execution of orders is made (i.e. EVERY INTERACTION)
Frequency
50%
Degree of review New Change Adjustment
Manage-ment
B2BBroker & CP
Manu-facturer
RiskCom-
pliance
MiFID Firm
PwC
October 2015
Business Challenge 2 –Recordkeeping & data
Section 5
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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PwC
October 2015
Product governanceReceipt or definition of target market per product
Section 5 – Business Challenge 2 – Recordkeeping & data
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
15
Accountable
• Manufacturers have to store and provide to distributors when needed all the required product data (same applies to intermediaries in case of a chain of distribution)
• Distributors have to store all relevant products information to comply with enhanced client information duties
Storage obligation
Review of products manufactured:• Prior to any further issue or re-launch of the products• If aware of event that could materially affect the potential risks to investors• At regular intervals to review if product functions as intended
Review of products distributed on regular basis
Frequency
100%
Degree of review New Change Adjustment
Manage-
mentB2B
Broker
& CP
Manu-
facturerRisk
Com-
pliance
MiFID Firm
PwC
October 2015
Best executionDuty to best execute is extended and subject to disclosure
Section 5 – Business Challenge 2 – Recordkeeping & data
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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Additionally to MiFID I data, to assess the best execution investment firms will have to record and store for all transactions:• Price of the financial instruments • Costs related to the execution including:
− execution venue fees− clearing and settlement fees− any other fee paid to a third party
Storage obligation
• The top five execution venues and the Information on the quality of execution obtained must be disclosed to public on an annual basis
• Review in case of ‘material change’Frequency
40%
Degree of review New Change Adjustment
Accountable Manage-ment
B2BBroker & CP
Manu-facturer
RiskCom-
pliance
MiFID Firm
PwC
October 2015
Business Challenge 3 – Reporting & disclosure
Section 6
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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PwC
October 2015
Products & servicesDisclosure of total costs and inducements
Section 6 – Business Challenge 3 – Reporting & disclosure
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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Accountable
Investment firms must : record and store all costs and associated charges• information relating to both investment and ancillary services, • the cost of advice, where relevant, • the cost of the financial instrument recommended or marketed to the client,• how the client may pay for it, also encompassing any third-party payments.
Storage obligation
Point of sale disclosure (ex-ante):• In good time for the client to consider material information when making the investment decision
Post-sale disclosure (ex-post):• On a regular basis • Possible to provide aggregated together with existing period reporting to the client
Frequency
75%
Degree of review New Change Adjustment
Manage-ment
B2BBroker & CP
Manu-facturer
RiskCom-
pliance
MiFID Firm
PwC
October 2015
Deep dive – Client reportingPortfolio loss disclosure and periodic suitability review
Section 6 – Business Challenge 3 – Reporting & disclosure
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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B2CRetail Clients
B2BProfessionals & Nominees
Brokers & Counter-parties
ClientsData Management Reporting & Operations
DataReport
Record
Legend:
DataPricing
Fair Value
Committee
DataInstr. Types
RecordPortfolio History
Quarterly Portfolio Management Reporting
Quarterly Loss Reporting
Quarterly Contingent Liability Reporting (per Instrument)
DataLiability & Ownership
Quarterly Positions/Holdings Reporting
PwC
October 2015
Client reportingPortfolio loss disclosure and periodic suitability review
Section 6 – Business Challenge 3 – Reporting & disclosure
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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Accountable
80%
Degree of review New Change Adjustment
Manage-ment
B2BBroker & CP
Manu-facturer
RiskCom-
pliance
MiFID Firm
• Suitability statements (indication of how its meets client objectives, characteristics & preferences)• Portfolio management reports (incl. activities and performance) and execution reporting • Client assets reports (assets subject to MiFID , those affected by peculiarities in ownership status,
estimated value of the prices not available)
Storage obligation
• At least annual suitability review and up-to-date statement (mandatory for portfolio management & if chosen in case of investment advice), frequency to be increased depending on (1) the risk profile of the client and (2) the type of financial instruments recommended
• At least quarterly portfolio management and client assets reporting and more frequently:
- upon reach of a threshold reporting trigger for portfolio management reporting- upon client request for client assets reporting (at reasonable commercial cost)
Frequency
PwC
October 2015
Transaction reportingEnhanced contents and change in interface (ARMs)
Section 6 – Business Challenge 3 – Reporting & disclosure
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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Accountable
To perform the transaction reporting, investment firm will have to gather and to store new data, including:
• the details of the deal (buy/sell, quantity, date and time of execution, transaction prices;• a designation to identify the clients on whose behalf the IF has executed;• a designation to identify the responsible for the investment decision;• identification of the investment firms concerned;
Storage obligation
• Transaction reporting must be performed and sent to Approved Reporting Mechanism or to the National Competent Authority on a daily basis
Frequency
90%
Degree of review New Change Adjustment
Manage-ment
B2BBroker & CP
Manu-facturer
RiskCom-
pliance
MiFID Firm
PwC
October 2015
Deep dive – Transaction reportingData field mapping and key changes
Section 6 – Business Challenge 3 – Reporting & disclosure
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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42new fields
73% new data
Change compared to MiFID I
ITimpact
Legal impact
Comments
Client identification
Medium High
Full identification of the client (ID number, name, date of birth).Issue if the reporting entity is outside Luxembourg (i.e. banking secrecy).
Decision maker, algorithm and waiver identification
Medium High
Full identification of the decision maker if not the client (e.g. discretionary portfolio managers, 3rd party advisors).
Buyer/Seller logic High Low
The buyer/seller logic is the same as for EMIR (e.g. for interest swap, the buyer will be the fix rate and the seller the floating rate).
Small regulatory adjustments
Medium Low
New fields to reports due to new MiFID II requirements (e.g. matched principal trading).
MTF and OTF traded instruments also in-scope
PwC
October 2015
Conclusions – C-Suite BlockerSection 7
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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PwC
October 2015
C-Suite BlockerKey decisions and actions
Section 7 – Conclusions – C-Suite Blocker
3rd PwC MiFID II Breakfast • Regulatory update & key business challenges
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CFO
- Budgeting for Data management, reporting & interfaces
- Fee schedule adjustments coordination
- Financial impacts simulation
CRO
- Product Target Market assessment
- Contingent liability and leverage positions identification
CLO
- Revision of Client Service Contracts
- Revision/Implementation of Waivers
- Agreements with ARMs
CCO
- Recordings review (risk based)
- Inducements and CoI Management
- Transaction Reporting disclosures management
CEO
- Definition of service positioning
- Definition of fee schedule
- Definition of B2B strategy
- Identification of competitive advantages
This publication has been prepared for general guidance on matters of interest only, and does not
constitute professional advice. You should not act upon the information contained in this publication
without obtaining specific professional advice. No representation or warranty (express or implied) is given
as to the accuracy or completeness of the information contained in this publication, and, to the extent
permitted by law, PricewaterhouseCoopers, Société Coopérative, its members, employees and agents do
not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone
else acting, or refraining to act, in reliance on the information contained in this publication or for any
decision based on it.
© 2015 PricewaterhouseCoopers, Société Coopérative. All rights reserved. In this document, “PwC”
refers to PricewaterhouseCoopers, Société Coopérative which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
Olivier CarréPwC Luxembourg, MiFID II Leader
400, Route d‘EschL-1471 Luxembourg
Telephone: +352 49 48 48 4174E-Mail: olivier.carre@lu.pwc.com
Join us on www.pwc.lu/mifid or www.mifid2.lu