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) was implemented on the 3rd January 2018 and is collectively referred to as MiFID II.
The new regulations will:
- Strengthen investor protection.
- Increase the disclosure and transparency of trades in financial instruments A financial instrument includes shares, bonds, units in collective investment schemes, derivatives and money market instruments..
- Enhance organisational conduct of business requirements for investment firms and trading venues A trading venue includes all regulated markets, such as the London Stock Exchange in the UK, where shares and other securities are traded..
- Reduce systemic risk and the risk of market abuse.
- Increase the efficiency of financial markets.
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:
- Shares, bonds and other forms of securities which are traded through a trading venue (trading venue includes all regulated markets, such as the London Stock Exchange in the UK).
- Units in collective investment schemes.
- Money market instruments.
- Options, futures, swaps and other forms of derivative.
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
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:
- You will be provided with the full costs of your investment, if applicable, before it is placed so that you can assess the impact of the costs on the amount invested. You will also receive a report after the investment is placed to review the performance.
- You will receive an annual summary of charges you have incurred on your holding in the financial instrument, if applicable, confirming the total costs and charges. The first report is due in 2019.
- If you hold a discretionary model portfolio through our Managed Portfolio Panel (MPP), we will notify you by post and, if applicable, your adviser by secure message if there is a drop in value of 10% or more since your last statement.
MiFID II has introduced a new requirement that all investment product providers must provide investors with a quarterly valuation of their investment products. Pensions (including SIPPs) are excluded from this requirement.
Aims of MiFID II
To provide more security and transparency for investors
Increase the disclosure of trades
How does it impact me? Increased reporting including:
The impact of any costs and charges before an investment is placed
Performance of an investment
An annual summary of charges
What products are impacted?
View our user guide on creating a pre-sale disclosure
Keep checking back to this webpage for more information
Read our short guide on the rules on disclosing costs and charges on your products and investments
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.
MiFID II has introduced a new requirement for you to be provided with a quarterly valuation of your investment product.
Pensions (including SIPPs) are excluded from this requirement and we will continue to issue you with an annual pension valuation on the anniversary of the start of your plan. Where you hold a non-pension investment product (i.e. ISA, Investment Portfolio, General Investment Account, Offshore Bond) we will now issue you with a valuation of this product on a quarterly basis, with the individual investment product anniversary date being used as the initial start date for this change.
You will receive an individual valuation pack for each non-pension investment product you hold.
The covering letter issued will clearly reference the product that the valuation relates to as indicated in the example letter below.
Where you hold more than one non-pension investment product, separate valuation packs will be issued on a quarterly basis.
If you have a pension product with us, in addition to a non-pension investment product, the value of this will not be reflected in the quarterly valuations you receive. You will however continue to receive an annual valuation on the anniversary of the start of your plan.
To summarise, investment products that have moved to quarterly valuations are:
- Modular GIA
- Modular ISA
- Wrap Investment Portfolio
- Wrap ISA
- Wrap Offshore Bond
Please note If you hold a pension product with James Hay in addition to the above products, where this is a SIPP, the valuation can be securely obtained via James Hay Online.
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.
For more information about creating a pre-sale disclosure, you can view our user guide.
If you are making ad hoc or regular Investment Centre fund purchases through your James Hay Online account, we will provide details of the target market for each fund for you to review before placing the trades. This will help you decide whether the fund(s) are designed to meet your investment needs. It is worth noting that we won’t assess whether the fund’s target market is appropriate to your needs – if you have any doubt please seek financial advice.
You can view the target market information for funds available through our Investment Centre on our website
If you have a Modular ISA, GIA or a Wrap, you will start to receive quarterly valuations of your product, instead of the current half-yearly valuations. The reporting frequency for SIPP is remaining at the current annual frequency.
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.
Know the performance of your investment and the impact of any costs with multiple reports.
Reporting the full costs and charges pre and post investment.
Stronger protection of your assets.
MiFID II is an update across the investment market, impacting advisers, investment managers and fund managers.
Frequently asked questions
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.
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.
We will provide any updates on this web page. We recommend you bookmark this page and check back for further updates.
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.