regulatory update & key business challenges - pwc …...pwc october 2015 where do you expect the...

3rd PwC MiFID II Breakfast

Regulatory update & key business challenges

www.pwc.lu/mifid

Regulatory Advisory Services

October 2015

1 Update on Level 2 Regulation 1

2 PwC MiFID II Client Survey 3

3 MiFID II recordkeeping & disclosure challenges 8

4 Business Challenge 1 – Client interaction 11

5 Business Challenge 2 – Recordkeeping & data 14

6 Business Challenge 3 – Reporting & disclosure 17

7 Conclusions – C-Suite Blocker 23

Contents

PwC

October 2015

Update on Level 2 RegulationSection 1

3rd PwC MiFID II Breakfast • Regulatory update & key business challenges

1

PwC

October 2015

Summary of recent events & Level 2 updates

Section 1 – Update on Level 2 Regulation


2

Dec 2014

Sept2015

Sept2015

? Level 2 Delegated Act of EU Commission

Joint letter of UK, DE, FR to EU Commission

June2015 Statement of EU Parliament to EU Commission

Publication of Level 2 RTS for MiFIR

ESMA Technical Advice on MiFID & MiFIR

PwC

October 2015

PwC MiFID II Client SurveySection 2


3

PwC

October 2015

Programmemobilisation

Impact Assessment

Strategic Options

Gap Assessment

Implementation

When will you start with the different project phases?

Q3 2015 Q4 2015 Q1 2016 Q2 2016

3rd PwC MiFID II Breakfast

2 PwC MiFID II Client Survey

4

Source: PwC Luxembourg MiFID II Client Survey

PwC

October 2015

How will you organise and staff your project?

Section 2 – PwC MiFID II Client Survey


5

28%

10%

28%

16%

8%

10%

Resource Types

Business

Legal

IT

ProjectManagement

Compliance

External

Size: Between 12 to 25 locally

Setup: Primarily • cross-divisional/business

or • group-wide

Combination with other projects:

• PRIIPS• Client Segmentation• Pricing Strategy


PwC

October 2015

3.84

3

3.43.6

2.2

3.6

4

Product Design Service Offering ClientSegmentation

Distribution Reporting Funding andLiquidity

Operations &Control

Technology &Data

Impact from 1 (no) to 5 (radical)

Where do you consider the greatest impact?



6


PwC

October 2015

Where do you expect the greatest challenge/areas of concern?



7

4 4

4.4

4

2.2

3.4

3.8

Regulatoryuncertainty

Timely strategicdecision making

Implementationtimeline

TechnologyChanges

Stakeholder buyin and support

Projectresourcing/budget

Third partydependencies

Impact from 1 (no concern) to 5 (significant concern)


PwC

October 2015

MiFID II recordkeeping & disclosure challenges

Section 3


8

PwC

October 2015

MiFID II disclosure and recordkeeping mapping

Section 3 – MiFID II recordkeeping & disclosure challenges


9

B2CRetail Clients

DataReport

Record

Target MarketInformation

Legend:

Target MarketFeedback

B2CRetail Clients

Client records

Orders & transactions

Position records

Product information

Service information

Client orders

Client Portfolio Reporting

B2BProfessionals & Nominees

Service/ Transaction information

Client Reporting

MiFID Firm

Compliance Report

Risk Management

Report

Internal Audit Report

COI records

Inducementrecords

Complaints records

Personal transactions

CSSF

TAF

Brokers & Counter-parties

Product Manu-

facturersClient

Transactions Reporting

ESMA

ARMs

Governance ReportingTAF

PwC

October 2015

MiFID II disclosure and recordkeepingScrutiny increases data and communication challenges

Section 3 – MiFID II recordkeeping & disclosure challenges


10

Client Communication

Regulatory reporting

Data sources

Recordkeeping

Transactionreporting

Compliance, COI, Inducements &

complaints

The investment firms are subject to the pre-existing governance reportings(compliance, risk, internal audit) as well as to transaction and execution reporting to National Competent Authorities for legal entity and branch(es) respectively.

Regulatory disclosures

The internal governance is enhanced requiring registers and records to support the management of potential conflicts of interest, inducement justifications as well as the documentation of the adequacy of representativeness in case of independent advice.

Internal compliance

Transactions are subject to best execution and subject to the changes in market infrastructure introduced by MiFIR. Additional disclosure of clients concerned and intermediaries.

Transactions

KeyBusiness

Challenges

The client interactions are subject to extensive logging and recordkeeping duties. The service level agreed with the client

determines the governance duties.

Communication

The investment firm will be required to obtain product information, cost and

inducement disclosures/certifications as well as best execution confirmations

from its suppliers (products), brokers and business partners.

Data

MiFID II has extended the requirements to log client

interactions relative to service delivery and orders/transactions, to review suitability and portfolio

value and to record internal governance.

Recordkeeping

PwC

October 2015

Business Challenge 1 – Client interaction

Section 4


11

PwC

October 2015

Client profiling & service contractQualification of services determines governance duties

Section 4 – Business Challenge 1 – Client interaction


12

Accountable

• Client assessment: Record-keeping of (1) client categorisation, (2) client agreements & (3) assessment of suitability & appropriateness

• Communication with client: Record-keeping of the investment advice to retail clients, i.e. (i) the fact, time and date that investment advice was rendered, (ii) the financial instruments that was recommended and (iii) the suitability/appropriateness report provided to the client

Storage obligation

• At least annual suitability review (mandatory for portfolio management & if chosen in case of investment advice), frequency to be increased depending on (1) the risk profile of the client and (2) the type of financial instruments recommended

• At least annual review of the client profiling • Review of the advisory contracts upon any material change in the fin. instruments

analysis process and/or in the selection process & product shelf (if independent advice)

Frequency

75%

Degree of review New Change Adjustment

Manage-ment

B2BBroker & CP

Manu-facturer

RiskCom-

pliance

MiFID Firm

PwC

October 2015

RecordingsClient interactions are subject to extensive logging

Section 4 – Business Challenge 1 – Client interaction


13

Accountable

• Records of the communications/conversations in : - a durable medium - readily accessible and available for clients on request

• Retention of the records during 5 years for clients and up to 7 years for authorities (from the date the record is created) AND national archiving/recording rules

Storage obligation

• Any time a communication/conversation relating to OR at least/intended to result in transactions concluded on own account and the provision of client order services related to the reception, transmission and execution of orders is made (i.e. EVERY INTERACTION)

Frequency

50%


Manage-ment

B2BBroker & CP

Manu-facturer

RiskCom-

pliance

MiFID Firm

PwC

October 2015

Business Challenge 2 –Recordkeeping & data

Section 5


14

PwC

October 2015

Product governanceReceipt or definition of target market per product

Section 5 – Business Challenge 2 – Recordkeeping & data


15

Accountable

• Manufacturers have to store and provide to distributors when needed all the required product data (same applies to intermediaries in case of a chain of distribution)

• Distributors have to store all relevant products information to comply with enhanced client information duties

Storage obligation

Review of products manufactured:• Prior to any further issue or re-launch of the products• If aware of event that could materially affect the potential risks to investors• At regular intervals to review if product functions as intended

Review of products distributed on regular basis

Frequency

100%


Manage-

mentB2B

Broker

& CP

Manu-

facturerRisk

Com-

pliance

MiFID Firm

PwC

October 2015

Best executionDuty to best execute is extended and subject to disclosure

Section 5 – Business Challenge 2 – Recordkeeping & data


16

Additionally to MiFID I data, to assess the best execution investment firms will have to record and store for all transactions:• Price of the financial instruments • Costs related to the execution including:

− execution venue fees− clearing and settlement fees− any other fee paid to a third party

Storage obligation

• The top five execution venues and the Information on the quality of execution obtained must be disclosed to public on an annual basis

• Review in case of ‘material change’Frequency

40%


Accountable Manage-ment

B2BBroker & CP

Manu-facturer

RiskCom-

pliance

MiFID Firm

PwC

October 2015

Business Challenge 3 – Reporting & disclosure

Section 6


17

PwC

October 2015

Products & servicesDisclosure of total costs and inducements

Section 6 – Business Challenge 3 – Reporting & disclosure


18

Accountable

Investment firms must : record and store all costs and associated charges• information relating to both investment and ancillary services, • the cost of advice, where relevant, • the cost of the financial instrument recommended or marketed to the client,• how the client may pay for it, also encompassing any third-party payments.

Storage obligation

Point of sale disclosure (ex-ante):• In good time for the client to consider material information when making the investment decision

Post-sale disclosure (ex-post):• On a regular basis • Possible to provide aggregated together with existing period reporting to the client

Frequency

75%


Manage-ment

B2BBroker & CP

Manu-facturer

RiskCom-

pliance

MiFID Firm

PwC

October 2015

Deep dive – Client reportingPortfolio loss disclosure and periodic suitability review



19

B2CRetail Clients

B2BProfessionals & Nominees

Brokers & Counter-parties

ClientsData Management Reporting & Operations

DataReport

Record

Legend:

DataPricing

Fair Value

Committee

DataInstr. Types

RecordPortfolio History

Quarterly Portfolio Management Reporting

Quarterly Loss Reporting

Quarterly Contingent Liability Reporting (per Instrument)

DataLiability & Ownership

Quarterly Positions/Holdings Reporting

PwC

October 2015

Client reportingPortfolio loss disclosure and periodic suitability review



20

Accountable

80%


Manage-ment

B2BBroker & CP

Manu-facturer

RiskCom-

pliance

MiFID Firm

• Suitability statements (indication of how its meets client objectives, characteristics & preferences)• Portfolio management reports (incl. activities and performance) and execution reporting • Client assets reports (assets subject to MiFID , those affected by peculiarities in ownership status,

estimated value of the prices not available)

Storage obligation

• At least annual suitability review and up-to-date statement (mandatory for portfolio management & if chosen in case of investment advice), frequency to be increased depending on (1) the risk profile of the client and (2) the type of financial instruments recommended

• At least quarterly portfolio management and client assets reporting and more frequently:

- upon reach of a threshold reporting trigger for portfolio management reporting- upon client request for client assets reporting (at reasonable commercial cost)

Frequency

PwC

October 2015

Transaction reportingEnhanced contents and change in interface (ARMs)



21

Accountable

To perform the transaction reporting, investment firm will have to gather and to store new data, including:

• the details of the deal (buy/sell, quantity, date and time of execution, transaction prices;• a designation to identify the clients on whose behalf the IF has executed;• a designation to identify the responsible for the investment decision;• identification of the investment firms concerned;

Storage obligation

• Transaction reporting must be performed and sent to Approved Reporting Mechanism or to the National Competent Authority on a daily basis

Frequency

90%


Manage-ment

B2BBroker & CP

Manu-facturer

RiskCom-

pliance

MiFID Firm

PwC

October 2015

Deep dive – Transaction reportingData field mapping and key changes



22

42new fields

73% new data

Change compared to MiFID I

ITimpact

Legal impact

Comments

Client identification

Medium High

Full identification of the client (ID number, name, date of birth).Issue if the reporting entity is outside Luxembourg (i.e. banking secrecy).

Decision maker, algorithm and waiver identification

Medium High

Full identification of the decision maker if not the client (e.g. discretionary portfolio managers, 3rd party advisors).

Buyer/Seller logic High Low

The buyer/seller logic is the same as for EMIR (e.g. for interest swap, the buyer will be the fix rate and the seller the floating rate).

Small regulatory adjustments

Medium Low

New fields to reports due to new MiFID II requirements (e.g. matched principal trading).

MTF and OTF traded instruments also in-scope

PwC

October 2015

Conclusions – C-Suite BlockerSection 7


23

PwC

October 2015

C-Suite BlockerKey decisions and actions

Section 7 – Conclusions – C-Suite Blocker


24

CFO

- Budgeting for Data management, reporting & interfaces

- Fee schedule adjustments coordination

- Financial impacts simulation

CRO

- Product Target Market assessment

- Contingent liability and leverage positions identification

CLO

- Revision of Client Service Contracts

- Revision/Implementation of Waivers

- Agreements with ARMs

CCO

- Recordings review (risk based)

- Inducements and CoI Management

- Transaction Reporting disclosures management

CEO

- Definition of service positioning

- Definition of fee schedule

- Definition of B2B strategy

- Identification of competitive advantages

This publication has been prepared for general guidance on matters of interest only, and does not

constitute professional advice. You should not act upon the information contained in this publication

without obtaining specific professional advice. No representation or warranty (express or implied) is given

as to the accuracy or completeness of the information contained in this publication, and, to the extent

permitted by law, PricewaterhouseCoopers, Société Coopérative, its members, employees and agents do

not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone

else acting, or refraining to act, in reliance on the information contained in this publication or for any

decision based on it.

© 2015 PricewaterhouseCoopers, Société Coopérative. All rights reserved. In this document, “PwC”

refers to PricewaterhouseCoopers, Société Coopérative which is a member firm of

PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Olivier CarréPwC Luxembourg, MiFID II Leader

400, Route d‘EschL-1471 Luxembourg

Telephone: +352 49 48 48 4174E-Mail: [email protected]

Join us on www.pwc.lu/mifid or www.mifid2.lu

http://www.pwc.lu/mifid

http://www.mifid2.lu/

regulatory update & key business challenges - pwc …...pwc october 2015 where do you expect the...

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