Case Study: Outsourced business assurance accelerated by RegTech
Discover how we helped a client deal with fluctuating business assurance faster and with improved quality!
MiFID II recently hit a significant milestone, having been in force for 12 months. To celebrate its first birthday, we examine the impact it has had on the industry and how wealth managers have adapted to the new requirements.
On the surface, MiFID II shouldn’t have significantly impacted the relationship between clients and wealth managers in the UK. The regulation was designed to drive a ‘belt and braces’ approach to mandated annual suitability reviews, which many firms in the UK were already conducting.
There are always divergences in how firms have implemented any new regulation, based on their specific systems and business model. However, on the whole, we are seeing high levels of compliance with MiFID II. There are still parts of MiFID II which are a challenge to implement in a way which is efficient and streamlined. For example, best execution reporting, distributor reporting and 10% portfolio reporting are all areas that many firms are having to implement manual fixes for, or where reporting takes up significant and disproportionate amounts of management time.
One year on, firms are beginning to review their approach, not only to compliance, but also to ensure that client relationships have not been adversely affected. Firms are also providing more upfront disclosure around what MiFID II will mean for clients. As an example, the 10% portfolio change reporting rule has led to a greater emphasis on client communication at the start of the relationship to minimise the risk of clients panicking and selling out too soon as a result of temporary market movements.
How have margins been impacted?
It is likely that both implementation and operational costs have increased as a result of MiFID II, which will impact margins, but not to a material extent. More generally, we are seeing a greater focus on driving operational efficiencies to reduce the impact of increased costs.
In the coming months, we’d expect to see a greater use of technology and automation within the advice process, as well as the continued refinement of their propositions.
On that note, MiFID II has massively increased the burden on IT systems and tech resources, but many firms have also started to look at how technology can increase efficiencies in compliance monitoring activities such as file reviews and call monitoring.
The question that no one has successfully answered from a commercial perspective is: what can we do with all this data? The huge volume of data required under MiFID II reporting rules may have uses for firms outside of compliance and trading patterns. As an example, are we seeing trends in best execution reporting? Given the transparency of costs and charges, have we looked at the costs of our downstream providers. Firms have also started to explore the ways IT can help to increase efficiencies in compliance monitoring activities such as file reviews, listening to calls etc.
Ultimately, good strides have been made in MiFID II compliance, but as with all regulations, firms often have slightly differing interpretations and some of the more challenging aspects may take time to refine and embed.