MiFID II – more than just a Retail experience
12 Oct 2017 - Estimated reading time: 2 minutes
When discussing MiFID II, LGPS conversations have focused largely on the impact of being classified as a Retail, rather than Professional, client and the process of opting back up to the latter. Further details can be found here.
However, there are other implications, two of the most notable being:
- Managers’ approaches to dealing with charging for external research; and
- The need to have a Legal Entity Identifier (“LEI”) for segregated mandates.
To date, most of the managers we have spoken to are planning to absorb the costs of external research; however, this may not always be the case. For those that do intend to pass on the cost, we have asked them to quantify the impact for investors. Even when it is being absorbed, managers might seek to update their investment manager agreements to reflect a new fee scale e.g. a lower fee, but then include a research fee so in aggregate you end up back at the existing fee scale. We will continue to monitor the industry’s approach to dealing with this change.
Currently a derivative counterparty (e.g. a Fund with a segregated swaps portfolio) is required to have a LEI under derivative regulations (EMIR). However, from 3 January 2018, it will also be a requirement for a Fund with other segregated portfolios (e.g. bond mandates that do not use derivatives) to have an LEI under MiFID II.
Funds in this position should be hearing from their segregated managers about applying for an LEI. Please do not ignore these requests. If a Fund needs an LEI and does not have one by 3 January, the manager will not be able to manage the portfolio from that point on.
Only one LEI is required per Fund, so the same LEI can be used for more than one segregated portfolio. Details of Funds with LEIs can be found here.
If you have any questions, please get in touch or contact the relevant managers.