There’s been a lot of noise in the media this week about MiFID II or to give it its full name “Markets in Financial Instruments Directive” but what does it mean for UK consumers?
The principle behind MiFID II is to produce a transparent, level playing field for all EU residents when purchasing financial products listed in the EU, such as stocks and shares ISAs and pensions.
The focus is on the underlying investments and funds that sit within these financial products, the details provided about what costs are incurred, as well as how suitable these investments are for you, the consumer. The companies providing each investment need to decide on the target market – in other words the types of clients who would be most appropriate for each investment, and the Independent Financial Adviser (IFA) then needs to ensure these are the right fit for clients that fall into that category.
If you’re an existing investor with investments managed on a discretionary basis, then your portfolio valuation updates you receive periodically will now be provided on a quarterly basis. You may only see your adviser once or twice a year, but under the MiFID II rules, you will receive information on your investments each quarter giving you greater visibility over your finances.
If you’re still yet to take the plunge into the world of financial investment, MiFID II will, put simply, allow you greater transparency, confidence and protection.
There are several other measures introduced by MiFID II that are “behind the scenes” improvements aimed at providing additional security for investors, allowing the regulatory bodies the ability to monitor transactions more closely and identify any that look suspicious. As a client you’re also likely to hear more messages stating “your telephone call is being recorded”, providing greater clarity in the event of any confusion, with records being maintained for a minimum of six years!
If you are a charity, trust or other form of corporate entity you may also be required to apply for a Legal Entity Identifier (LEI). If you are buying or selling certain investments you will need to provide your LEI before the transaction can take place. For consumers this is typically your National Insurance number that is used as your unique identifier, the LEI is the equivalent for corporates, although it is 20 digits not 9!
Although MiFID II started on 3 January 2018, there will over time undoubtedly be additional aspects to follow, and clarification on how some elements were expected to be interpreted.
The main message for clients is not to worry! There may be some additional information required before investments can be made, but this is based on increasing the protections you receive on an ongoing basis.