Guest Blog: How to ensure quality in cost and charges reporting for 2018 according to MiFID II

By Jens Jørgen Holm Møller, Experienced executive - international expert in asset management and business strategy

New Year 2019 is approaching and for the first time investment firms shall provide annual ex-post information about all costs and charges to their clients according to MiFID II. The Fund Data Infrastructure FundConnect, has asked me to create a number of blogs in order to inspire distributors and asset managers to consider relevant issues related to the supply and demand for data for the end of year reporting. I hope that such discussions will support the ongoing standardization efforts and industry practices regarding exchange of data and thereby promote cost efficiency as well as high quality information to investors, while facilitating high levels of compliance on the part of the distributors. 


According to ESMA, distributors must provide information at least annually. As MiFID II took effect on the 3rd of January 2018, the reporting period begins at that date and most distributors are expected to let the first Ex-Post statements cover the 12 months in 2018. Table 1 gives an overview of the requirements. 

Table1: Overview of obligation to provide ex-post information on costs and charges to clients

Which products Financial instruments that the firms have recommended or marketed or where they have provided the KID/KIID to the client
Which clients Clients to whom the firms have or have had an ongoing relationship during the year.
What information All costs and charges related to the financial instrument(s) as well as investment and ancillary service(s). Information shall be given both as a cash amount and as a percentage.
How specific information Information shall be based on costs incurred and shall be provided on a personalized basis
When to inform Annually as a minimum for a 12 month period. Can be the calendar year or another period. Reporting should be done as early as possible

 

The Regulation and ESMA foresees that distributors should liaise with the manufacturer (e.g. the fund manager) to obtain information on costs and charges of the financial instruments. In order to standardize the exchange of data between manufacturers and MiFID firms and support efficient solutions a European Working Group across financial sectors (EWG) has created a MiFID template (EMT). This is already about to become “the standard” for data exchange. 

 

The need for a specific 2018 file

So far, manufacturers have reported a new EMT file when expenses change. In most systems for data vendors and distributors the new EMT overrides the former one and only the newest is accessible. This covers the needs for the so-called ex-ante reporting but it creates challenges for distributors in the ex post reporting:

  • Manufacturers report data at different times, so how can firms see, whether and when the EMT file is final and contains all realized data for 2018?
  • How can firms ensure that all relevant manufacturers update the EMT file with realized data from 2018 and not another period?
  • How can manufacturers ensure that all relevant distributors report the same realized 2018 costs for a given product to their clients?
  • How can firms be certain that subsequent changes to the EMT for the ex-ante reporting do not contain changes in the 2018 information?

 According to ESMA, distributors need specific and rather detailed information on realized costs for 2018 in order to comply with the MiFID obligation. Hence, manufacturers and distributors need a specific 2018 EMT file with realized costs.

In order to overcome these challenges, FundConnect’s PRIIPsHub division, among others, offers a free utility “Free Year-End EMT Ecosystem” Service for 2018.  This solution for fund managers and fund distributors provides the necessary data to be compliant with the requirements in MiFID II. 

 

Final words

In my opinion, the creation of the EMT is very valuable for the industry and for clients; however, it is only a first step. In subsequent blogs, I will describe issues to consider when distributors and manufacturers work with the 2018 EMT file. I will also look in to the need for further development in the sector solutions in order to facilitate the reporting from many different manufacturers across borders to many distributors all over Europe. 

 

Copenhagen, 6 December 2018

Jens Jørgen Holm Møller