MiFID II: Disclosure Article 1: High-Level Requirements

Important Note

This is a summary of detailed analysis that ATEB has undertaken of the disclosure requirements detailed in the MiFID II Policy Statement. Our full analysis will be discussed with ATEB clients as part of our ongoing service arrangements.

This article is one of a series. It is biased towards ‘typical’ ATEB clients. It is a very high level summary and does not therefore cover every MiFID connotation. It does include our interpretation of the requirements, where there is a lack of clarity, and should therefore be used with discretion and read with a questioning attitude.

All firms should read the Policy Statement.

High-level disclosure requirements

MiFID II proposed updates to the disclosure provisions in two sourcebooks, General Provisions (GEN) and the Conduct of Business sourcebook (COBS). In particular, there are new provisions in COBS 2.2A, COBS 4.5A, COBS 6.1ZA, COBS 14.3A and COBS 16A in relation to MiFID business.

The revised disclosure framework is intended to:

• provide for appropriate investor protection;
• detail the information to be provided to clients and potential clients; and
• detail how firms should report to clients.

It is important to note that there are different disclosure regimes depending on whether the business being carried out is MiFID or non-MiFID business. This distinction sounds straightforward, but it is not. Like much of MiFID II related text, it is not immediately clear what is being said, or to whom it is applicable, and requires careful and repeated reading.

A summary of the key requirements is shown below

There is no required standard format for firms to adhere to in relation to disclosure, so each firm will need to develop its own approach to reflect the needs of clients and its business proposition. Indeed, the old style ‘about our services’ FCA templates are no longer on FCA website.

There is the option to disclose via a website, under certain conditions (see subsequent articles).

 There are new disclosure provisions relating to firms doing MiFID business that apply in relation to:

• cross-selling/bundled products or services;
• a revised requirement to retain records for at least five years;
• some more detailed post-sale reporting requirements (see separate article to follow).

For firms doing non-MiFID business, the rules that apply in relation to cross-selling/ bundled products or services, and record-keeping are unchanged; the rules in relation to post-sale reporting obligations are also substantially unchanged. 

The ‘fair, clear and not misleading’ requirements that apply currently to promotions and disclosure continue unchanged for retail and professional clients. Currently, for communicating with eligible counterparties (ECPs), only the misleading aspect applies and the application of fair and clear will NOT be extended to ECPs.

Firms providing the service of portfolio management must provide periodic statements to clients containing a prescribed set of information (in COBS 16A). Portfolio management is defined as:

“Managing portfolios in accordance with mandates given by clients on a discretionary client-by client basis where such portfolios include one or more financial instruments (article 4(1) (9) of MiFID).”

For the definition of a financial instrument see page 26 of Annex A in the policy statement.

Key point summary

1. Firms need to understand how their firm status (Article 3 Exempt, BIPRU, Exempt CAD, etc) corresponds to MiFID II requirements.
2. They need to understand what is MiFID business and what is non-MiFID business.
3. It should be noted that an Exempt firm, is not exempt from all the MiFID requirements, and that specific rules will apply.
4. Disclosure is one aspect of MiFID that affects all firms. Action, if not already commenced, is therefore needed as a matter of priority.