Markets in Financial Instruments Directive II (MiFID II) was adopted in May 2014, and in early 2016 the European Commission proposed to extend its application date until 3 January 2018. A Delegated Directive containing measures relating to investor protection (of particular importance for the fund industry) was published on 7 April 2016. Also in this context, PRIIPs Regulation will be in force at the end of 2016 with consequences for UCITS.
MiFID II is a wide ranging piece of legislation that affects much of the financial sector. For the fund industry, the new obligations for manufacturers and distributors of financial instruments in terms of designing and distributing financial instruments are of particular importance. This includes the need to identify a target market for each of the products concerned. Fund management companies will be impacted by the directive to the extent that their products are distributed by MiFID entities.
Another concern for the fund industry is also the opinion given by ESMA in its advice of December 2014 which considers AIFs as de facto complex instruments. In ALFI’s view each fund should rather be subject to an individual assessment and then appropriately classified.
There is a new inducements regime that bans monetary inducements for portfolio managers and independent advisers. As regards non-independent advisers, ESMA’s advice to the EU Commission seems to have been heeded so that, under certain conditions, advisors can continue to be paid appropriately by product manufacturers. This will help ensure that retail investors have access to a sufficient range of financial instruments and investment advice.
It remains a concern that the application of MiFID II is not consistent with UCITS and PRIIPS. An example is the difference between the various texts in terms of disclosure requirements for on-going charges or transaction costs.