MiFID General Awareness Training. Part 1 – Overview of the changes Part 2 – MiFID in more detail...
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Transcript of MiFID General Awareness Training. Part 1 – Overview of the changes Part 2 – MiFID in more detail...
![Page 1: MiFID General Awareness Training. Part 1 – Overview of the changes Part 2 – MiFID in more detail Part 3 – Economic Impact.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649e245503460f94b11bec/html5/thumbnails/1.jpg)
MiFID
General Awareness Training
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Part 1 – Overview of the changes
Part 2 – MiFID in more detail
Part 3 – Economic Impact
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Part 1 – What are the big recent and new changes?
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2007 at a glance
MiFID
Risk – based Supervision (already in)
Capital Adequacy Directive
Principles-based Regulation 2007
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Responsibility of Firms and Senior Managers
FSA’s Principles based Rules
Senior Management Deliver
Authority and
Risk based Supervision
Firms and Senior Management Responsibility Outcomes
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Changes More Principle-based Regulation
The eleven FSA principles e.g. Treating Customers Fairly Outcomes rather than detailed rules More senior management responsibility Predictability of FSA policy at time of decision More informal guidelines e.g. sector newsletters
Trade body guidelines e.g. MiFID Connect
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More Principles-based Regulation-Example
A firm had inadequate and incomplete compliance policies and procedures e.g. no up to date compliance manual and no regular visits to its branches.
Reporting to management was informal: it was not clear if senior management was aware of key problem areas.
It did not follow some of its own procedures which were sometimes above FSA Rule Standards.
The firm (Carr Sheppard) was fined £500,000 for breach of Principle 2 (firm must conduct its business with due skills and date) and Principle 3 (A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems).
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Changes The Risk-based Approach
By FSA of firms e.g. ARROW II By Senior Management within Firms Within FSA e.g. allocation of resources Applies to amount of capital required by firms
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Changes The Risk-based Approach – Example from the firm’s [Risk Map] [Here put in Excerpt from the Firm’s Risk
Map, Risk Register or ICAAP]
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Changes New Capital Adequacy Calculations – the
Impact on the Firm [Put in key points of change between current
and future calculation of capital adequacy of firm]
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Part 2 MiFID
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MiFID
MiFID was conceived for the noble purpose of opening up Europe’s Capital Markets by improving price transparency of traded financial instruments while making it easier to execute trades across borders.
““““FT
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MiFID
““ ““Alarm over financial instruments directive
EU plans attacked by banks and investment firms
FT
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Which Firm Functions are affected?
MiFID
Front Office e.g. Sales, Trading and
Investment Management e.g. Conduct of Business
Operationse.g. trade reporting
I.T. Technology e.g. data collection
Internal Audit e.g. authority
Compliance
Legal e.g. Client Agreements
Senior Management
HR e.g. Training
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MiFID at a glance
MiFID
Relationships with Clients Internal System and Controls
Equal treatment of Exchanges and Multilateral Trading Facilities and price transparency
Equivalent Conduct of Business Rules in all EEA Countries
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MiFID What is the scope and impact of MiFID A broad range of requirements
- best execution, pre- and post-trade transparency, client disclosure and reporting…
Affecting most areas of a firm - senior management, managers, client services, trading, custody…
Affecting many types of buy-side and sell-side firm - Traditional and electronic exchanges, banks, asset
managers, issuers, brokers, systematic internalisers...
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MiFID What is the scope and impact of MiFID? (Cont.) Most financial instruments are within scope
- equities, fixed interest, derivatives, stock lending, OTC trading…
- Commodities
The impact of MiFID will vary - between firms (depending how well prepared they are) - between lines of business (some more affected than
others) - and between jurisdictions (depending on current national market practice, relative to the level playing field of EEA-
wide MiFID)
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Appropriate ness/
Suitability
Best Execution
Inducements Complaint
Management Conflicts of
Interest Outsourcing Terms of
Business
Client Categorisation
Client Reporting
Research Product information
Docu -mentation/ Archiving
Pre-/Post-Trade
Trans -parency
Design products Acquire clients Advise clients Execute business Reporting
MiFID
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Robust Financial and Operating Controls under MiFID and Capital Requirements Directive Risk identification and management e.g. Risk
Maps and ICAAP capital allocation Assessment of exposures e.g. for financial
crime and market abuse Corporate Governance e.g. proper job
descriptions, Management Information to Board, Record Keeping etc
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Robust Financial Systems and Controls under MiFID – Examples
[Extract from the Firm’s Financial Crime Risk Assessment including management of the risk.]
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Relationships with Clients under MiFID (and other changes)
A new shorter Conduct of Business Rulebook The overriding ‘Client’s Best Interests’ Rule Categorisation of new and existing clients Account Opening procedures including more KYC Change Terms of Business Duties of Suitability and Appropriateness to retail and
professional clients Order execution and trading including best execution Trade and Periodic Reports
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Relationship with clients under MiFID and other changes - Examples
Some new clients who would be Intermediate Customers under current rules may be Retail Clients under new rules
Firm must consider all venues including electronic order matching systems offering “best possible outcome” for execution policy
Pre-trade and post-trade price transparency information for liquid equities
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Markets
Exchanges
The end of the Concentration Rule
Multilateral Trading Facilities
and Systematic Internalisers
Separation from transaction Reporting (and sale of data)
Publication of Pre-Trade and Post-Trade equity prices
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Markets - Example
There is a Client Order for a UK equity Currently main market is LSE and Plus
Markets Firm can choose which to use In future Firm’s Execution Policy will look at
these and electronic order matching systems e.g. Chi-x, and, if traded outside UK, at other exchanges and markets
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Best Execution
Best Execution
To produce “best possible outcome.”
Many factors of which price is
important for retail
Applies to agency and principal Client
Orders
Duty is owed to Professional and
Retail Clients
Client negotiating on Quote requested by it
excluded from the duty
Execution Policy summary to
Clients
Client Instructions override the duty
Order Transmitters have same but
less responsibility
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Best Execution – Example
[Extract from the Firms Best
Execution Policy]
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Cross-border services and branches under MiFID
Passporting
Cross border sales under Home State Regulators Rules
Uncertainties over who regulates branches for third country business
Systems and Controls under Home State Regulators Rules
Simpler notification procedure
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Cross-border services and branches under MiFID - Example UK Firms solicits business from individuals
resident in Italy Currently very difficult because Italian
Conduct of Business Rules restrict sales to the “public” by non-Italian regulated Firms
In future cross-border sales can be made under FSA COB Rules and not local rules
Sales by Italian Branch still under local rules. Unclear whose rules apply to branch’s third country sales
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The new Approved Persons (AP) Regime FSA has withdrawn plans to remove
wholesale customer-facing and corporate finance persons from the AP regime
The merger into a single controlled function for each of management, finance and customer facing roles
Approved Individuals moving within new Customer Controlled Function (CF30) need no FSA approval, but the Firm must assess them as “competent “
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Training and Competence
New Rule
The “competent employee” rule i.e. the skill, knowledge and expertise for the job (SYSC)
No compulsory examinations for wholesale Examinations from FSSC recommended list taken into account by the FSA in the knowledge component of competence Firms must meet “competent employee” Rule
•Employees must remain competent •No annual fixed time target
•For firm and individual to decide •CPD should be recorded
• For retail
• Compulsory examinations remain
• Responsibility of firm to assess competence in change of job within the same Controlled Function
• Ethical behaviour part of competence
Training and Competence
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Changes to a Firm’s Policies and Procedures Account Opening Conflicts of Interest Suitability and Appropriateness Execution Policy Training and Competence Record Keeping
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Changes to a Firm’s Policies and Procedures - Example
[Give example of changes to a specific policy of the firm such as
conflicts of interest.]
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MiFID and other changes
Part 3
Economic Impact
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The Possible Impact of MiFID
European markets for customers
More competition to exchanges driving better
prices
Cross-border investment costs
reduce
Outsourcing opportunities
increase
Firms provide better service at lower cost
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Economic Impact on Firm? [Examples relating to the firm such as the following] Any changes to business strategy Will the firm have Retail Clients? Will it opt up individuals to become elective
Professional Clients? To whom will the firm give Best Execution
(where there is a choice)?
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The Challenge and Opportunity of MiFID
““ The clear cost of implementation of MiFID will only prove justified if firms take the opportunities generated to raise revenues.
““John Tiner’s Speech to the FSA’s MiFID Conference May 2007