Markets in Financial Instruments Directive II

The Markets in Financial Instruments Directive (MiFID) II - along with the Markets in Financial Investments Regulation (MiFIR) – came into force on 3 January 2018. Any firms and individuals buying or selling ‘financial instruments’ must comply. 

Here’s a summary of the changes we’ve made to be compliant with MiFID II.

MiFID was introduced in the UK in 2007 to facilitate cross-border investments and introduce common consumer protection within the European Union (EU). It’s responsible for setting a framework of EU legislation for:

  • investment intermediaries that provide services to clients around listed securities (for example, shares, investment trusts, exchange traded funds (ETFs)), bonds and units in collective investment schemes – collectively known as financial instruments, and
  • the organised trading of financial instruments.

It affects firms directly involved in securities trading and investment management. It also affects firms distributing products such as ISAs, general investment accounts (GIA) and self-invested personal pensions (SIPPs), which allow investment into shares, investment trusts, bonds and UCITs. 

MiFID II’s provisions for investor protection will directly affect advisory firms and intermediaries who advise clients, or enable clients to transact in listed securities. 

You can read the FCA consultation papers, policy statements and user guides at new window)

Why not have a look at 'Our approach to MiFID II' for more information. 

Our approach to MiFID II

There are several key areas that impact Aegon and how we work with you and your responsibilities as financial advisers. We’ve been working with advisers, discretionary fund managers (DFMs) and fund managers over 2017 to ensure we were ready for the new regulations which came into force on 3 January 2018.

Best execution is an important part of MiFID II. The obligation to achieve best execution is in Article 27 of MiFID II, which states that an investment firm must take all sufficient steps to obtain the best possible result for its client when executing a client order.

We’ve produced a new Order execution policy summary(Opens new window) and updated our full Order execution policy(Opens new window) in line with the MiFID II regulations. You can find them in our document library.

From 3 January we won’t be able to process any trades for equities, investments trusts or ETFs unless we have certain unique identifiers. These identifiers apply for the buyer/seller and the person who makes the investment decision on an investment transaction.

Please note that although European Securities Markets Authority (ESMA) has delayed this requirement by 6 months, we’ll still require the LEI.

If you transact with us on a discretionary mandate on behalf of your clients on these listed securities, we’ll have written to you to ask for your LEI. This could be your firm, branch, or network adviser’s LEI. 

We’ll have also written to you to provide details of your clients who buy and sell these listed securities. This will be their Natural Persons Unique Identifier (NPUI) which will involve capturing their nationality (including both where dual nationality exists) and the country of nationalities additional unique identifier such as their National Insurance number, passport number or their LEI if they aren’t a private individual.

Further details on LEI’s can be found at new window) and in the FCA's Legal Identify Identifier: what you need to do leaflet.

As we already carry out transaction reporting to the Financial Conduct Authority, this won’t change. We’ll still continue to do this.  

The funds you make available to your customers are changing in two ways. Firstly through a requirement to define a ‘target market’ and secondly through the identification of ‘complex investments’.

What is a target market?

Under MiFID II there will be a common view of what target market means for fund managers, but in essence it’s a description of the types of people and their characteristics who are targeted for each financial instrument.  Distributors will also need to define their target market. 

When fund managers define their target market, they’ll also need to set out the types of clients outside of the target market. Again, distributors will need to do this when determining their target market for customers.

What are complex investments?

Fund managers will identify if the characteristics of their investments requires evidence of a higher level of understanding of the associated risks for non-advised customers, through an ‘appropriateness test’. This test assesses their level of knowledge and experience of investing and whether the investment is appropriate.

  • We won’t be making complex investments available to non-advised clients.
  • Advised clients aren’t affected by this rule, as the usual suitability requirements will apply.

As a consequence of the changes, some customers won’t be able to trade in certain investments and existing customers won’t be able to top-up or switch into those investments in the future. However, customers can continue to hold or sell these investments if required.

We’re working with fund managers to identify complex investments and to receive target market data, which we’ll be able to share with advisers. We’ll provide further updates as this work progresses.

We’re producing the relevant disclosures for pre-sale and post-sale costs and charges information.

Pre-sales disclosure

We’ll continue to provide personal illustrations for our products and in addition provide a charges summary of MiFID impacted investments. This summary will show the aggregated product costs for example, the fund manager costs that a customer will incur investing in a MiFID impacted investment. It will also include a summary of the service costs they’ll incur in holding those funds in their product with us for example, our charges and any adviser/intermediary charges facilitated through the product. 

The product and service costs will also be broken down into the respective itemised costs as required by MiFID, these include aggregated one-off costs and ongoing costs and will be displayed in £s and % as required.

Please note we won't issue a charges summary for SIPP illustrations and therefore advisers may see differences in the investment charges information between GIA/ISA and SIPP. We’re continuing to monitor how competitors and the industry has interpreted the regulations and will continue to discuss this with the regulator.

Post-sales disclosure

We currently provide clients with a six monthly statements. Under MiFID II this will change and for clients invested in ISA, GIA or have non-insured assets in our SIPP, we’ll be issuing statements on a quarterly basis. 

We’ll continue to include a yearly statement of their portfolio valuation and a list of all transactions over the previous 12 months.

Under MiFID II, investment firms providing the service of discretionary portfolio management must provide their client with quarterly portfolio management statements.

They’ll also need to inform the client where the overall value of the portfolio, relative to the value at the beginning of each reporting period, depreciates by 10% and thereafter at multiples of 10%. This should be no later than the end of the business day in which the 10% loss has happened or, in a case where the loss is on a non-business day, the close of the next business day.

If you work with a DFM you need to understand how they’ll notify you of a 10% drop and also whether they intend to provide you with supporting information as to the reason why, to allow you to advise and support your clients. 

We'll notify you by email if your client's portfolio value falls by 10% and provide details of the client's impacted to allow you to contact them.