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

In January 2019, I finalized the first European survey on how to ensure quality in the annual ex post reporting, that is mandatory according to MiFID II. I am very grateful, that fund associations and market participants in Germany, France, UK, Luxembourg, Belgium, Sweden, Norway and Denmark participated in the survey. The countries cover 66% of the AUM in European UCITS; hence, the survey gives a good picture of the current state of affairs in ex post reporting and the challenges that lie ahead.

The ambition of the European internal market in the investment fund area is to promote free and equal competition among European investment funds to the benefit of European savers. This already happens largely as many different investment funds distribute their products across borders through many different investment firms all over Europe. In the following section, I illustrate how the survey – see table below or PDF- shows many differences that cause low quality information, which cannot be compared from fund to fund. The resulting misinformation of European investors is caused by late and unclear legislation. Despite this reality, the industry must continue its standardization efforts through 2019 in order to benefit investors and avoid excessive expenses.

The problems

My survey shows that there is a need to define how the EMT template developed by the industry should be used. Currently there are no standards for the use and consequently a number of central reporting choices are left to the fund companies.

The survey shows, that fund companies choose differently, and that some countries support their national industry by developing national solutions. Due to the absence of European standards for the use of the EMT template, MiFID firms will have big challenges in practice. The reasons are that the individual countries and/or individual fund companies choose their:

  • Their own frequency for updating (daily, monthly, quarterly, annual)
  • Their own deadline for updating after ending of the reporting period.
  • Their own time period for the annual ex post information (calendar year or another 12 month period).

In some countries, historically approved data for 2017 are used, while preliminary data for 2018 are used in others. This situation has probably emerged because national solutions in place typically only cover national players.

This means, that even though all fund companies report, they report so differently, that MiFID firms will have big challenges complying with their obligation to give investors meaningful information. Especially if they use funds from other countries, where the standards are different, or if they use funds, that have not updated when the MiFID firm has to report to clients.

On top of this, it still has not been considered how to give meaningful information to investors that have not owned their fund shares in the entire 12-month period. It is not as simple as using the latest calendar year expenses reported by the fund groups.

The survey shows that most MiFID firms plan to use the calendar year for their first ex post reporting, but due to the varying choices made by the fund groups, it may be difficult to get hold of the data needed to report. Easy access to 2018 data irrespective of the fund groups’ frequency for updates will therefore be valuable. So far, I only know one golden source of 2018 ex post data, which is offered free HERE.

Need for improvements in 2019

The survey shows clearly, that it is important to continue the standardization efforts beyond the current level. If not, the objective of promoting cost efficiency for the industry as well as high quality information to investors will not be met.

Already today, manufacturers produce a new EMT, every time cost data changes in relation to one off costs and ongoing costs. In addition, a time stamp on the EMT could be introduced. Data companies could then organise database services with all the EMT’s. This solution can promote the following situation:

  • The latest EMT should always be used for the ex ante reporting.
  • Firms must use all the EMTs for a given year for the ex post reporting of the ongoing costs in the period of their validity and match them with the holdings of the individual clients. (As foreseen in the legislation)
  • Moreover, firms will need a year-end reporting, as the transaction costs and performance fees can only be calculated when the fund group has prepared its EMT with ex post data.

I hope that the national differences shown in the survey will inspire European collaboration in the industry in 2019 and subsequent development of the data exchange architecture. The new Financial Data Exchange Group (FinDatEx) that is supported by the entire financial industry is well suited to take up the challenge and find the right solutions to the benefit of investors and the industry.

21 January 2019
Jens Jørgen Holm Møller