PlatformApr 10 2018

Platforms under fire over Mifid II data rules

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Platforms under fire over Mifid II data rules

As part of the target market rules - which are part of the product governance regime (PROD) introduced in January by Mifid II - manufacturers must specify a target market for their products and advisers must tell them when they are not selling them into those markets.

This means information about this will need to be passed back and forth between fund managers and advisers, prompting questions about the role of platforms.

A number of figures in the industry have said there has been an uneven response across the platform market - with some proving willing to help with this information flow and others not.

This has raised the prospect of some fund managers opting not to use certain platforms if the problem persists, which in turn could narrow the options available to clients of advisers who use those platforms.

Phil Deeks, technical director at compliance consultancy TCC, said: "The FCA’s intention is for all relevant firms within this space to consider their role in ensuring effective product governance.

"However, some platforms are not paying due regard to the ‘appropriate and proportionate’ application of the PROD rules and are sticking to the literal interpretation of the later chapters in PROD3, which refers only to manufacturers or distributors.

"This narrow consideration and interpretation means that some have formed the view that they have no explicit regulatory requirements to adhere to in this area."

He said he was also aware of some other firms struggling to extract meaningful management information from platforms to feed that through to other businesses that need it.

"Ultimately, if platforms aren’t providing assistance in this area then the onus rests on advisers and manufacturers to try and identify the most appropriate way to plug this gap and meet their obligations," he said.

Mike Barrett, consulting director at the Lang Cat, said: "This whole area of PROD & target market feels like a bit of an issue to me.

"I don’t think many advisers have got anywhere near to understanding what the expectations are here. Platforms have role to play, but some (not all) are neither manufacturer or distributor so exactly what the role should be is unclear."

Under Mifid II, for each product, investment firms need to identify a potential target market and the type of client whose needs, characteristics and objectives it will meet.

If the product provider requires information on product sales to comply with the rules, distributors will have to offer it up but advising a client to invest in a product in a target market which the manufacturer didn't intend is not necessarily a regulatory breach.

Distributor is a wide term that in its product governance guidelines the European Securities and Markets Authority said covers "a firm that offers, recommends or sells an investment product and service to a client".

It is understood the FCA considers this to also cover platforms involved in selling investment products and providing a service, meaning they will be the recipients of information on target market from product manufacturers and will need to provide information on sales.

Simon Farrant, head of proposition at FundsNetwork, said his platform provides the information necessary to fund management companies and had been doing so for "many years" before Mifid II came into effect.

He said: "This might be where you find the distinction lies. If you have been around as a platform for a long time then fund managers will have been banging on your door many years before Mifid II was through about, asking for more information.

"What it may do at the margins is it may cause some fund managers to say 'we don't want to be listed by this platform because they will leave us in a weakened position to comply with our Mifid II objectives'. But I have not heard about that happening yet and the fund managers will be very reluctant to take that decision."

Mr Farrant said fund managers might be more likely to make this decision if a larger proportion of their sales came through platforms which did not provide data back and forth.

A spokesman for Standard Life, which owns its Wrap platform as well as Elevate, said: "The Mifid regulations dictate that it’s the responsibility of advisers as distributors of Mifid instruments to ensure that any investment choices they make are aligned to the needs of their clients.  Advisers therefore need to be in control of their investment choices - platforms are unable to take on this obligation.   

"To help support advisers in meeting this obligation, we make the necessary target market and cost information available on an instrument by instrument basis via our websites."

Ascentric, Novia and AJ Bell all said they would be helping to provide data back and forth.

A spokesman for AJ Bell said there were "certainly inconsistencies" in the way platforms were addressing this issue while Ascentric, which also acknowledged there were problems in this area, suggested advisers could use a data aggregator to address this.

Ian Cornwall, director of regulation at the Personal Investment Management and Financial Advice Association, said he would be attending a meeting in Paris in the next few weeks to attempt to clarify how these requirements could be met in a consistent manner across the EU.

He said: "What we are seeing is some platforms will not provide information back to the manufacturer and some might be more willing to report information. Different platforms are taking different views on that.

"We should know where we are in the next few weeks."

Nucleus and Aegon, which owns its own platform as well as Cofunds - the largest platform in the country, did not respond to a request for comment.

damian.fantato@ft.com