After a flurry of concern when Mifid II was introduced at the start of the year, the investment community has rapidly come to take the new rules in its stride, and return to business as usual.
But the cosy consensus that Mifid II amounted to a storm in a teacup was shattered last week by the news that Hargreaves Lansdown has been caught out by the new regulations.
Although Hargreaves’ transgression was unintentional, it shows that even the biggest names are not immune to these new complexities.
In June the FCA warned it would start to clamp down on breaches of Mifid II rules, and the financial services community will now be watching with bated breath to see what, if any, sanctions are applied in this case.
The reality is that this breach was a fairly simple one. Hargreaves Lansdown invested capital despite not being able to confirm the nationality and National Client Identifier of a number of foreign national clients.
The easiest way for an adviser to ensure they are Mifid II compliant, when it comes to onboarding and KYC obligations, is to employ decent technology. By monitoring a client’s data in real time, IFAs can respond immediately to any red flags or a change in circumstance.
However, with the recent breach in mind, it is prudent to consider the wider implications of Mifid II. There an argument that advisers need to review their current arrangements to ensure they are fully compliant, particularly amid the market’s current uncertainty.
Let us look at the requirement to produce quarterly statements of account which, although clearly not the most taxing of the new regulations, does create significant administrative burden.
It is quite obvious that standardising these reports and making them accessible for clients is not the most effective use of an IFA’s time.
Another key tenet of Mifid II is the 10 per cent rule - the obligation to inform a client, before the end of that business day, if their portfolio has dropped by 10 per cent or more, compared to its valuation at the beginning of the quarterly reporting period.
Most advisers who use DFMs on platforms do not have access to their client’s portfolio performance. Therefore, they require the DFM to inform them when the 10 per cent drop occurs, so they can then report to their client. This is a multi-stage process which inevitably slows down the communication and potentially puts Mifid II obligations in jeopardy.
The truth is that IFAs need to reassess their current model and demand more from their platform. Because they have access to all the required information, they are best placed to inform IFAs and clients about a 10 per cent drop and also prepare quarterly performance reports.
Those platforms with technology at their heart should have no problem fulfilling this fairly straightforward request.
We offer these facilities at Fundment, through the use of our retail permission (and despite not being direct-to-customer), we generate and send a customised email to the end client, copying the adviser in. This ensures all parties are up-to-date and Mifid II’s regulations are always front and centre.