Global Trustee and Fiduciary Services News and Views Issue 48

Global Trustee and Fiduciary Services News and Views

| Issue 48 | 2017

services and activities across, and into,

Europe, in terms of both how trading is

carried on and how firms organise and

conduct themselves. They will affect both the

wholesale and retail sides of the industry for

securities and derivatives. They should also

not be seen as solely European measures,

as their collective effect will be far-reaching

and influence non-EU firms that have or are

seeking a European client base.

When will MiFID II have an impact

on fund managers?

Managers of UCITS and alternative investment

funds (AIFs) will be affected by the rules laid

down in MiFID II if they have extended their fund

manager licences to also provide investment

advice and/or individual portfolio management.

In addition, AIF managers may also provide the

investment service receipt and transmission of

client orders.

If the licence of the fund manager also allows

the provision of the aforementioned investment

services, a seemingly limited amount of rules

apply. However, these rules will be more detailed

and prescriptive under MiFID II. Therefore, the

impact should not be underestimated. The rules

that will apply are articles 15, 16, 24 and 25

of MiFID II. These articles cover the minimum

own capital requirement, the organisational

requirements, general principles on the duty

of care and the provision of information, and

the rules on suitability and appropriateness

that apply. Below we look at some of the most

important amendments.

There will be a distinction between independent

or non-independent investment advice

Under the current rules there is no explicit

distinction between independent or non-

independent advice. However, MiFID II requires

that by giving independent advice, fund

managers should consider a sufficiently wide

and diverse range of financial instruments

available on the market. In addition, the financial

instruments considered should not be provided

solely by the firm or closely linked entities, and

no inducements should be paid or received.

There are more detailed rules on the

selection process if a manager wants to

provide independent advice. The selection

process should assess and compare a range

of sufficiently diverse financial instruments.

This means that a diversified selection of

instruments (by type, issuer or product

provider) should be considered. The number

and variety of instruments considered

should be proportionate to the scope of

services offered and should be adequately

representative of those available in the market.

Furthermore, the quantity of financial

instruments issued by the firm or entities

closely linked to it should be proportionate

to the total amount of instruments

considered and the criteria for comparing

various financial instruments should include

all relevant aspects, and they should ensure

that neither the selection of instruments

that may be recommended nor the

recommendations are biased.

It remains possible for fund managers to

focus on certain classes or a specified range

of financial instruments. However, additional

restrictions in relation to marketing apply.

Investors should be able to easily identify

a preference for the specified classes or

specified range of financial instruments and

get a confirmation that the product is suitable

for such investor.

The rules on product governance will not apply

directly to fund managers: however, be aware...

The rules of the new EU-wide product

governance regime in principle do not

apply to fund managers. Distributors of the

funds that are captured by these new rules

will expect the fund managers to at least

determine or assist to determine the target

market of the funds. The detailed rules on

product governance will be implemented

into Dutch law in the BGfo. Based on

the explanatory memorandum to the

consultation document, it appears that the

Dutch minister of finance does not intend to

gold-plate the provisions set out in the EU

Delegated Directive. However, there are some

text inconsistencies. We expect that these

will be corrected in the final proposal.

Intermediaries or distributors will not be able

to sell the manager’s products unless the

fund manager provides the required product

information. In this context, the information

contained in UCITS KIIDs and PRIIPs KIDs does

not meet the product information requirements

under MiFID II, neither on the determination of