The Commission adopted the MiFID Delegated Directive on 7 April 2016. This is a first level II measure under MiFID II, and will be followed others in the course of the next 3 months.
The draft Delegated Directive sets out the governance and organisational arrangements to ensure the safeguarding of client financial instruments and funds. In particular it further specifies the measures ensuring the appropriate use of title transfer collateral arrangements when dealing with non-retail clients or preventing the unintended use of client financial instruments, the arrangements to be adopted with respect to securities financing transactions or those concerning the recording and disclosure requirements. In order to address concentration and contagion risks to client funds, the draft Delegated Directive also strengthens firms’ due diligence requirements, including by requiring firms to consider diversification when depositing client funds as well as the compliance with the principle of a limit on client funds deposited with group entities.
As far as the choice of the legal instrument is concerned, a directive was favoured for this area where measures and arrangements should take into account any applicable legal regimes that could affect the clients’ rights and their rights to property in particular. This will enable Member States, when transposing its provisions into national law, to ensure coherence with other bodies of law. However, this should not imply that legal provisions in other existing areas of law which are inconsistent with the provisions of the draft Delegated Directive should not be repealed or adjusted to ensure proper implementation.
The costs of the choices for the MiFIDII/MiFIR delegated acts made by the Commission described in the impact assessment fall almost entirely on market participants who will incur, amongst others, certain costs for implementing the enhanced organisational and conduct of business rules. The Impact Assessment provided further estimations of the compliance costs triggered by the delegated acts. By ensuring a harmonised implementation and application of MiFID II and MiFIR the delegated acts will make sure that the objectives of the legal texts adopted by the European Parliament and the Council can be achieved without imposing inordinate additional burden on stakeholders. [...]
Chapter II: Safeguarding of client financial instruments and funds
The draft Delegated Directive sets out the governance and organisational arrangements to ensure the safeguarding of client financial instruments and funds. In particular it further specifies the measures ensuring the appropriate use of title transfer collateral arrangements when dealing with non-retail clients or preventing the unintended use of client financial instruments, the arrangements to be adopted with respect to securities financing transactions or those concerning the recording and disclosure requirements. In order to address concentration and contagion risks to client funds, the draft Delegated Directive also strengthens firms’ due diligence requirements, including by requiring firms to consider diversification when depositing client funds as well as the compliance with the principle of a limit on client funds deposited with group entities.
As far as the choice of the legal instrument is concerned, a directive was favoured for this area where measures and arrangements should take into account any applicable legal regimes that could affect the clients’ rights and their rights to property in particular. This will enable Member States, when transposing its provisions into national law, to ensure coherence with other bodies of law. However, this should not imply that legal provisions in other existing areas of law which are inconsistent with the provisions of the draft Delegated Directive should not be repealed or adjusted to ensure proper implementation.
Chapter III: Product governance requirements
The Chapter sets out details for the implementation of the product governance rules introduced under MiFID II. The product governance rules concern both investment firms that manufacture financial instruments as well as investment firms that distribute them to clients.
The product governance obligations for manufacturers (firms that create, develop, issue and/or design products) include procedures and arrangements to ensure that conflicts of interest are properly managed, governance processes to ensure effective control over the manufacturing process, the assessment of products’ potential target market, the assessment of the risks of poor investor outcomes posed, due consideration of products’ charging structure, the provision of adequate information to distributors and the regular review of products.
The product governance obligations for distributors apply to investment firms when deciding the range of products (issued by themselves/other investment firms/non-MiFID entities) and services they intend to offer to clients and include processes to ensure that the products/services that investment firms intend to offer are compatible with the characteristics, objectives and needs of an identified target market, the involvement of management bodies, the periodic review of product governance arrangements to ensure that they remain robust and fit for purpose.
Chapter IV: Inducements
The Chapter sets out the rules with which an investment firm has to comply when providing or receiving fees, commissions or any monetary or non-monetary benefits. In particular, the provisions further specify the condition that inducements should enhance the quality of the service to the client as well as the application of new rules for the reception or payment of inducements with respect to investment firms providing investment advice on an independent basis or portfolio management services.
Full draft Delegated Directive
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