A recent survey found that 90% of buy-side firms are at risk of non-compliance by the Mifid II deadline in January 2018.
The Financial Conduct Authority published its final policy statement on Mifid II implementation last week, however some firms are still struggling even though there are less than six months to go until the deadline.
The survey, published last month by regulatory consultancy JWG, said that 45% of respondents are attempting to implement the requirements with a team of less than five people, while another 45% still have not determined how exactly the obligations impact their companies.
So how are wealth managers doing?
‘I think we’re in a pretty good place,’ said Andrew Shepherd, deputy chief executive officer of Brooks Macdonald. ‘We’ve spent the last six months assessing all the requirements and we’ve got work streams in place dealing with all that apply to us.’
On external research, Brooks has decided to pay for it from its own balance sheet, believing that to be the simplest and most transparent way.
While Shepherd said that the FCA’s most recent paper was ‘helpful’, he does believe that there are still some issues that need to be clarified, meaning there are concerns around the timing.
One of these areas is the division of responsibility between discretionary managers and platforms, especially concerning client notification when there is a 10% drop in the value of portfolios.
‘Who is taking responsibility for that? It’s quite difficult for us as we don’t know the underlying clients,’ he said.
He added that there is a risk that there could be more guidance sent out which could require further changes to company’s implementation plans. ‘Hopefully not too late in the day.’
Brooks has also implemented a system upgrade over the last couple of years, which it purposefully delayed to include much of the Mifid II requirements. In addition, the firm installed a new system to record all calls on landlines and will extend that to include mobile and electronic communications.
‘We’ve got six months to go, it will go very quickly and we’re in a good place, but there is a lot more to do in terms of the actual tasks. The planning is fine but we have the implementation as well. If we end up getting further guidance at the end of the year that will be difficult to deal with.’
Elsewhere, Brewin Dolphin also believes that it is making ‘good progress’ in preparation for the new legislation.
‘Discussion with our peers leads us to believe that we are advanced in our thinking and implementation. In line with other firms, we are and will continue to make changes to our IT systems and are making progress in preparing the system updates,’ a spokesperson said.
Bearing the costs
On research, the wealth manager added that although it has a significant in-house team, where it wants to receive external research it will bear the cost. Similarly, Charles Stanley points out it has a large in-house research function, but chief operating officer Michael Bennett said the firm will also take on the cost of buying in any external research itself, ‘where we both value it and it is priced right’.
Looking more broadly at implementation for Mifid II, he said: ‘We are on track, with a comprehensive project plan for each of Mifid II’s components. Over the last two years we have spent a lot of time working through the new requirements with our trade association, the Personal Investment Management & Financial Advice Association (formerly the Wealth Management Association), and we are now deeply into the implementation phase.
‘The FCA has been largely silent on how Mifid II should be interpreted in practice and we expect it will only form a view through thematic work well after Mifid II has come into force. This has meant that firms have been especially reliant on working closely with trade associations, and each other, to develop common sense practical interpretations of the high-level requirements.
What should firms do now?
TCC technical director Phil Deeks points out that if they have not already done so, firms will need to undertake ‘a gap analysis to understand the changes needed and have a clear plan for implementing them ahead of the deadline, including compliant systems for call recording and cataloguing’.
Although the regulator has clarified several points, Deeks said that the pricing of research is still an area where firms are experiencing difficulties because there are no ‘standardised pricing models’, therefore making it difficult to budget for it.
TCC group CEO Joanne Smith added that complying with conversation recording rules should also assist firms with wider compliance.
She said: ‘The data and management information (MI) available to firms utilising conversation recording systems can also enhance the firms’ governance, another integral part of Mifid II, as well as the necessary evidence that product governance requirements are being met.’