Europe’s big bang of market reforms, known as MiFID II, is approaching faster than the financial services industry would like. This legislation aims to strengthen protection for investors and inject greater transparency into the markets. Last week we spoke to Julie Sadler at Bankhall for some of her thoughts.

From asset managers to traders, brokers, banks and exchanges, everyone is having to prepare for the new regime that will come into effect at the start of January. We caught up with John Jackson, Managing Director at Cornelian, to get his take on MiFID II. He specifically focused on the challenges reporting a 10% drop in discretionary portfolios on platform.

 

Satisfying reporting requirements

 

With little more than three months to go, the industry is finally focusing on the challenges presented by MIFID II.

One area experiencing particular challenges is satisfying the reporting requirements when using models on third party platforms. Where a discretionary investment manager runs a model for an Adviser on an independent platform, issues arise from the fact the discretionary investment manager has no visibility of the underlying client.

The manager has no way of knowing when the client joined the model or, indeed, when money was added or withdrawn. The discretionary investment manager therefore has no accurate way of identifying when the client has breached the 10% trigger for a report.

 

This is not a new problem

 

Although the requirements of MIFID II are bringing this problem into sharp focus it is not new. Once a situation is created in which the discretionary manager does not have visibility of the underlying client portfolio then it becomes impossible for the discretionary manager to satisfy the most fundamental requirement of discretionary investment management – client specific reporting.

Inevitably, the discretionary manager is reliant upon the platform or even the Adviser to deliver this reporting.

It is surprising, and disappointing, at this fairly late stage, some platforms still seem hesitant or may even be walking away from their obligations to offer this reporting. In order to gather assets on their platform, those platforms have been highly pro-active in encouraging the growth of these discretionary models. The platforms have willingly taken on the mantle of discretionary reporting on behalf of their supporting discretionary investment managers.

If they now turn around and say they cannot cope with it where does that leave the discretionary manager, the Advisers and, most importantly of all – the underlying clients?

 


This article was created for DISCUS by John Jackson, Managing Director at Cornelian. You can find out more about Cornelian’s discretionary investment services here ›