What is MiFID II?

Markets in Financial Instruments Directive (MiFID) is a European Directive. MiFID I was implemented in the UK in 2007 and following the financial crisis in 2008, the European Union sought to further enhance investor and market protections.

MiFIR is the new Markets in Financial Instruments Regulation. MiFIR, along with the update to MiFID (now known as MiFID I) will be implemented on the 3rd January 2018 and are collectively referred to as MiFID II.

The new regulations will:

What is covered by MiFID II?

The MiFID II regulations cover financial instruments A financial instrument includes shares, bonds, units in collective investment schemes, derivatives and money market instruments.. This includes the following types of investment:

None of the products you have with James Hay such as the SIPP, ISA or GIA are financial instruments, under the definition in MiFID II, but you may choose to invest in financial instruments through these products.

For the SIPP, because you do not directly own the financial instrument as they are held by the SIPP trustee, most of the MiFID II regulations do not apply.

If you buy a financial instrument through the ISA or GIA, then the MiFID II regulations will apply.

What you need to know

In the lead up to the 3rd January 2018, we are updating our reporting and communications to be compliant and to ensure you are informed throughout the change process.

MiFID II is an update across the investment market and therefore advisers, investment managers and fund managers are all working to implement the changes.

How does this impact me as an investor?

As an investor the main thing you will notice is that you will receive additional information as follows:

 

Aims of MiFID II

tickTo provide more security and transparency for investors

tickIncrease the disclosure of trades

tickReduce risk

 

Next steps

tickMiFID II will come into force on 3rd January 2018

tickKeep checking back to this webpage for more information

How does it impact me? Increased reporting including:

tickThe impact of any costs and charges before an investment is placed

tickPerformance of an investment

tickAn annual summary of charges

 

What products are impacted?

tickISA

tickGIA

tickOffshore bonds

What is changing?

The main impact of MiFID II is that there will be an increase in additional reporting and the communications you will receive.

New disclosure requirements have been introduced to provide you with the full cost of a particular investment. This will cover the costs of the investment itself (e.g. the financial instrument such as a fund), product costs directly related to that investment (such as your James Hay SIPP, ISA or GIA) and the cost of financial advice (if applicable).

One of the main reasons for this requirement is to provide you with this detail in good time before you invest; this is referred to as a ‘pre-sale disclosure’. This will help you assess the impact of the costs on the performance of your investments.

Which products require a pre-sale disclosure?

If you do not have a financial adviser, you will only receive a pre-sale disclosure for an ISA or GIA.

If you are receiving ongoing advice, your financial adviser will provide you with the pre-sale disclosure and may choose to do so for investments within the SIPP as well as ISA and GIA as required by the regulation.

In addition, there is also a new requirement to confirm the total costs and charges that you have paid each year on each financial instrument where MiFID II applies, in the form of an annual summary of charges. The first report will be due in 2019 for charges incurred in 2018.

Further details about the new disclosure requirements will be updated on this web page prior to the 3rd January 2018.

Target markets

You may hear the term ‘target market’ connected with MiFID II. There is no material impact on you; it just means that providers of financial instruments have a duty to ensure that the underlying investors who chose to put their money into the investment fit the needs, characteristics and objectives of the specific instrument, i.e. that there is a strong fit between what the investor is trying to achieve and what the investment is looking to deliver.

Transaction reporting

There are additional transaction reporting requirements that product providers and distributors of financial instruments must action as part of MiFID II.

We don’t anticipate this to have a direct impact on you but we will be reviewing any necessary changes and will provide further updates in advance of the implementation date (3rd January 2018).

Managed Portfolio Panel

If you hold a discretionary model portfolio through our Managed Portfolio Panel (MPP), we will review your model portfolio value on a daily basis. If there is a drop in value of 10% or more since your last valuation statement, we will send you a notification by post and in addition will send a secure message to your financial adviser via their James Hay Online account. We will also let you and your financial adviser know if there are any further drops of 10% or more.

 

tickTransparency

Know the performance of your investment and the impact of any costs with multiple reports.

 

tickDisclosure

Reporting the full costs and charges pre and post investment.

tickSecurity

Stronger protection of your assets.

 

tickRegulation

MiFID II is an update across the investment market, impacting advisers, investment managers and fund managers.

Frequently asked questions

Why do we need to make changes to our services?

We are regulated by the Financial Conduct Authority (FCA) and comply with the regulations set out in the FCA Handbook. This includes the MiFID directive and the accompanying MiFIR (Markets in Financial Instruments Regulation) which form MiFID II. You can read the full guidelines set out by the FCA for MiFID II.

What impact will Brexit have on MiFID II?

Following the EU referendum vote, the FCA highlighted that all firms must continue to abide by their obligations under UK law, including those derived from EU law. Therefore we must be compliant with MiFID II and we will continue to review any updates to the legislation as they occur.

How will I know about the changes to my service?

We will provide any updates on this web page. We recommend you bookmark this page and check back for further updates.

Have you communicated these changes with my financial adviser?

Yes, we have provided investment professionals with a separate communication in relation to MiFID II and are working closely to keep them informed of our implementation plans ahead of 3rd January 2018.