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It is no coincidence that transaction reporting is the focus of attention in recent months. The MiFID II regulation is designed to safeguard investors and standardises trading practices across the financial services industry. Transaction reporting is just one of a total of 28 Regulatory Technical Standards (RTS). While the thrust of the standards covers areas such as market structure, product governance and research unbundling, transaction reporting requires firms to identify and report only those trades that are in scope. Once identified, the transactions are reported by the firm on a daily basis to the FCA via the MDP portal.

Given the 406 pages of regulatory standards, why is the FCA so focused on transaction reporting?  The simple fact is that it is the low hanging fruit for the regulator. Setting up the process for transaction reporting was seen by many as one of the easier standards to implement and the use of the Approved Reporting Mechanism (ARM) providers should act as a barrier between the reporting firm and the FCA. The widely held expectation was that all firms should be in a position to comply with this part of the regulation by the time of the go live in January 2018. That was 16 months ago. The recent fines now signal that the settling in period is over and that firms should brace themselves for inspections.

The MiFID II regulation is designed to safeguard investors and standardises trading practices across the financial services industry.

However, the simple truth is that many firms are still struggling to complete their reports with accurate or timely data. This is hardly surprising given the complexity of the requirements. Determining the eligibility of the individual transaction is just the start and determining which of the 65 fields needs to be populated is the second task. While ESMA spent much of 2018 clarifying their interpretation of the instruments in scope, reporting obligations and the various national identifiers through a series of Q&As, confusion continues with issues surrounding the Financial Instruments Reference Database. Many firms are still spending too much time managing changes to their front office systems, order management systems or third-party eligibility processing systems (or even spreadsheets) to put control processes in place to detect erroneous reporting.

Those who thought their ARM would do the heavy lifting were disappointed to realise that this was not the case. The role of the ARM is to provide services to report the transactions on behalf of the investment firm but is not responsible for the content of the reports. RTS 26 of the regulation is clear in that the responsibility lies solely with the firm and that ARMs provide limited protection. In the end, the ARM can only report what it has been provided with. The controls called out in RTS 6 and, in particular, article 15 of RTS 27 are designed to ensure that investment firms have an adequate operational framework in place to detect errors either prior to submitting reports or spot inaccuracies within a short period after the report has been processed by the ARM or the FCA. Mark Steward recently stated: “Firms must have proper systems and controls to identify what transactions they have carried out, on what markets, at what price, in what quantity and with whom. If firms cannot report their transactions accurately, fundamental risks arise, including the risk that market abuse may be hidden.”

The recent fines now signal that the settling in period is over and that firms should brace themselves for inspections.

The 2019 business plan published by the UK regulator has put market abuse at the top of their priorities. MiFID II came into play 16 months ago and we are now seeing the grace period coming to an end. We should expect inspections to start taking place this year. With the recent fines, the FCA are clearly signalling that they are going to focus on transaction reporting. While there may be a degree of leniency for those firms who are still in the process of improving internal controls, for any who are yet to embark on fulfilling their RTS 6 and RTS 27 article 15 obligations it would be wise to get these projects underway shortly.

A recent breakfast briefing hosted by AutoRek for some of the city’s largest investment firms on how to avoid fines developed some key themes that can assist firms in achieving greater compliance. Those highlighted during the session were: implementation of a control framework to increase accuracy of reporting; automation of processes wherever possible; documentation of all automated and non-automated processes; those involved in MiFID II need to know what they are doing and why they are doing it and, lastly, managers need to display ownership of the processes. If the recent fines are anything to go by, compliance is the only way to avoid an adverse inspection.

In the past year MIFID II has enticed change and development across the financial markets and research sector. Here Fabrice Bouland, CEO of Alphametry, analyses said change and the impact it has had on innovation.

Six months in and MiFID II research unbundling regulation has appeared to create an even worse market for investment research than we had previously. With many commentators decrying the ‘unintended consequences’ of the new legislation – namely bringing the research market to a grinding halt as asset managers assess their needs and sparking a price war which has all but crippled smaller, niche research houses – one might wonder if there is anything positive to say about the impact of MiFID II on the research market and whether anything which can be done to revive it?

In truth, MiFID II has ultimately shown us the historical ambiguity investment managers have always had with research. There has never been an easy way to answer fundamental questions like ‘what research is needed’, ‘how much should we pay for it’ and ‘how do we measure the value’. This lack of structure has been pulled well and truly into the spotlight under the new EU regulation, as well as the financial services sector’s slow take-up of new technology to answer these questions.

Thanks in some part to the new regulation, active management might be at a historic turning point. The progress in investment technologies is about to experience a quantum leap forward plus the expected deluge of new alternative data will unleash an unprecedented potential. R&D and new technology must play a leading role in this and MiFID II can claim credit for creating this opportunity to innovate.

Time to innovate

From a buy-side perspective, research providers need to adopt entirely new strategies to survive.

In the past six months, we have seen two developments. Firstly, Tier-1 providers are pushing content exclusively on their websites. This is a step back from a user experience perspective as remembering numerous passwords is impractical for portfolio managers to the extent that some have cut providers which do not provide easy access to their portals. Distributing research via aggregators or marketplaces in order to reach the maximum number of channels is another option in today’s market. This could be applied to any type of research or data, in whatever format, for the easier and faster use of the portfolio manager.

The second innovation we are starting to see is from research providers who, in response to plummeting prices, are reducing the number of analysts and opted for more automated production. Commerzbank is one provider which is experimenting with artificial intelligence to see if it can write basic analyst notes automatically to trim research costs.

Alternative research and AI

With regulation forcing active managers to value their historical research franchise, it’s become clear that research has barely evolved whereas the world of investible assets has changed dramatically. Factors affecting a company’s valuation go way beyond the simple analysis of its financials or strategy.

The rise of alternative datasets which cover a wide range of digital inputs from social media to credit card data, are becoming increasingly valuable to asset managers. In many ways, the rise of alternative data is one of the first manifestation of how research is changing for the better under MiFID II.

Similarly, the research product may no longer be exclusively research reports but also the technology layer which is able to extract intelligence from them automatically, quickly and at scale. Since the buy-side has always heavily relied on the sell-side when it comes to technology, most active investors are stuck in a technological gap. Capturing and processing a more and more sophisticated and voluminous information resource seems the way forward.

Is MiFID II helping or hindering innovation in financial markets? It already seems that asset managers are considering how tomorrow’s technology is affecting today’s research – let’s hope the speed of implementation can match the exponential changes in data volume and value which we are seeing in the wider world.

Although the Markets in Financial Instruments Directive II (MiFID II) was implemented at the start of the year, work for the financial services industry to comply with this new regulation is far from over. Still remaining are a number of uncertainties, with multiple milestones and deadlines for specific requirements set throughout 2018 and beyond.

Hailed as one of the biggest overhauls of the financial services industry in decades, MiFID II introduced 1.4m paragraphs of rules and a number of new obligations for firms operating in the sector. These included new and extended transparency requirements, new rules on payments for research, increased competition in trading and clearing markets and guidelines to promote financial stability. With many of these rules being delayed or their introduction staggered over the course of the year, there is still a challenging path for the industry to navigate.

Below, Matt Smith, CEO of compliance tech and data analytics firm SteelEye, explains for Finance Monthly the key steps financial organisations should take over the course of the year to ensure they are meeting MiFID II’s demands.

Q2 2018: Best execution under RTS27 and 28

MiFID II has two major “best execution” requirements which must be met by financial services firms – regulatory standards RTS27 and 28. As part of their obligations, RTS28 mandates that firms report their top five venues for all trading. With a deadline of April 30, the purpose of RTS 28 is to enable the investing public to evaluate the quality of a firm’s execution practices. Firms are required to make an annual disclosure detailing their order routing practices for clients across all asset classes.

Obligations include extracting relevant trade data, categorising customers and trading activity, formatting the data correctly in human and machine readable formats, adding analytical statements and placing all of this information in a publicly available domain.

Limiting disclosure to five trading venues makes complying with these obligations relatively simple for small firms with straightforward trading processes. As a firm’s activity increases in complexity, however, so does its reporting obligation and managing RTS28’s data component could become a significant burden, as compliance departments spend time classifying trades, normalising data, formatting reports and completing administrative tasks.

RTS28 is followed soon after by RTS27, which will hit the industry on June 30. RTS27 requires trading venues to provide quarterly best execution reports, free of charge and downloadable in machine readable format, and is intended to help investment firms decide which venues are most competitive to trade on. All companies that make markets in all reportable asset classes that periodically publish data relating to the quality of execution will be required to comply with RTS27.

The necessary publication of these reports requires the gathering and analysis of a significant quantity of data, which must detail price, costs, speed and likelihood of execution for individual financial instruments. Investing in the right technology ahead of the June deadline will ensure firms have the solutions needed to help digest such data and analyse it to inform their trading decisions. As we move through 2018 and 2019 however, analysis of this data, rather than being an additional burden, should help firms refine their best execution processes and generate a competitive business edge.

Q3 2018: Increasing transparency under Systematic Internalisers

One of MiFID II’s main aims was increasing transparency in the financial services industry in an attempt to avoid repetition of the 2007-2008 financial crash. In order to do this, a number of new rules attempting to regulate ‘dark pool’ trading were implemented, allowing regulators to police them more effectively and bring trading onto regulated platforms.

This system of increased transparency is designed to be effected through MiFID II’s new expanded Systematic Internaliser (SI) regime, the purpose of which is capturing over-the-counter trading activity to increase the integrity and fairness of industry trading and reduce off-the-book trades. For a firm to become an SI, they must trade on their own account on a ‘frequent and systematic basis’ when executing client orders. However, it is currently unclear what precisely ‘frequent and systematic’ means and as a result, many in the industry have been left without the necessary guidance to be able to implement these new rules correctly.

In August 2018, ESMA is set to publish information on the total number and volumes of transactions executed in the EU from January to June 2018. Any firm that has opted in under the regime or that meets the pre-set limits for ‘frequent and systematic’ basis will thereafter be classified as an SI under MiFID II.

The deadline for SI declaration follows shortly afterwards in September, which is when investment firms must undertake their first assessment and, where appropriate, comply with the SI obligations, which will become a quarterly obligation from then on.

Firms’ reporting obligations will increase considerably should they be classed as an SI. They will be required to notify their national competent authority; make public quotes to clients on request for their financial instrument; publish instrument reference data, post-trade data, and information on execution quality; and disclose quotes on request in illiquid markets. Adopting an effective pre- and post- trade transparency solution can help any firm set to be classified as an SI in September meet their obligations well ahead of the deadline in four months’ time.

Q4 2018: The impact of the pricing of research

Another major change under MiFID II is the regulation’s new rules on payment for research, which had previously been distributed to fund managers, effectively free of charge, but paid for indirectly through trading commissions. The provision of equity research is now considered to be an inducement to trade and the sell-side is only able to distribute their research to fund managers that pay for it. Moreover, an extra burden of red tape and reporting is being introduced as, by the end of 2018, investment firms must have provided clients with detailed information related to the costs and associated charges of providing investment services.

Research has effectively moved from an unpriced to a priced model and fund managers are now having to find a budget for research, with most firms electing to absorb that cost, which will inevitably impact their bottom line. The sell-side meanwhile will have to grapple with how to price their research, an unenviable task, given JPMorgan’s strategy to grab market share from smaller rivals by charging $10,000 for entry-level equity research.

Even before the aggressive pricing strategy adopted by the investment banking behemoth, the sell-side was facing consolidation and significant analyst job losses as the shrinkage of overall payments for research services to investment banks continues and asset managers become increasingly selective about the products and services they procure from investment banks. What is already certain is that the pricing and quality of investment research will be subject to closer scrutiny than ever before, driving up competition among research providers and triggering fragmentation and innovation in the marketplace.

Q1-2 2019: The UK’s departure from the European Union

While the FCA has stated that Brexit – at least currently – will not have an impact on their enforcement of MiFID II rules, the UK’s departure from the EU still leaves considerable uncertainty for those in the market. One recent survey found that 14% of surveyed compliance professionals had no idea how Brexit would affect their compliance requirements.[1] There is speculation that the UK could opt for ‘MiFID II-lite’ in all or some areas in order to better align it with the UK’s financial markets. This could mean that, while the industry must comply with MiFID II for this next year, after April 2019 a whole host of new rules and amendments could come into force.

As one of the core architects of the MiFID II rules, including many of its record-keeping and reporting principles, the FCA is unlikely to favour watered-down standards that could see London regarded as a less safe or transparent marketplace. However, with so much still up in the air, preparations should be made in order to ensure a swift transition once Brexit comes into force.

The strength of the UK’s regtech and fintech offering means the City should be well-placed to adapt to whatever shape MiFID II takes post-Brexit. To help prepare, strategy teams should work on plans for various post-Brexit scenarios in order to help weather the challenges that the UK’s EU departure will bring. UK players will undoubtedly emphasise their strengths in financial talent, product development, AI, fintech and regtech, helping the UK retain its leading position in the European financial market.

[1] https://www.thetradenews.com/uk-compliance-managers-predict-mifid-ii-exemption-post-brexit/

MiFID II came into force at the start of the month/year, but many businesses are still not compliant. Luckily for them, there’s a six month grace period before they’re actually in trouble. With that in mind, here’s 5 top tips for compliance from Joanne Smith, Group CEO of TCC and Recordsure.

MiFID II, hailed as the key to overhauling the financial markets and implementing the lessons learned following the financial crisis, is finally here. The legislation is designed to drive significant changes around transparency, investor protection and effective governance. It also aims to harmonise the various regulatory regimes that exist across the European Union.

With such broad and wide-reaching goals, the legislation, and the changes firms are required to implement in response, are significant and shouldn’t be underestimated. Yes, MiFID II is already in play, but with so much uncertainty in the build-up to implementation, firms may be less prepared than they might have hoped, or uncertain of how to ensure ongoing compliance.

Here are five top tips to help firms set themselves up for ongoing MiFID II compliance and strengthen their business for ongoing commercial success.

  1. Make Culture King

There’s no doubt that culture is one of the most important components of effective governance frameworks. Firms that are focussed on treating customers fairly and delivering the right outcomes are more likely to have greater commercial success and a more positive relationship with the regulator than one with a poor culture, or one which isn’t sufficiently embedded throughout all levels of the organisation. Recent FCA thematic output has identified how firms with objective self-challenge built into their processes are able to more effectively demonstrate that good customer outcomes are central to their business.

Firms should have gained a thorough understanding of their culture prior to making any changes to their business in response to MiFID II. However, culture isn’t static, it evolves over time and so firms will need to continually measure and evidence their culture and the impact it has on consumer outcomes. When assessing this, firms should keep MiFID II’s core aims of transparency and investor protection in mind and assess the extent to which internal practices are aligned.

  1. Consider the Impact of MiFID II on Future Strategy

Now that MiFID II is here, firms should keep the requirements front of mind when considering any strategic business changes, as the requirements do impact, whether directly or indirectly, on a significant number of business areas.

In the near future, the industry is likely to see changes in the distribution landscape, with firms exploring direct to client offerings and increased use of digital services to serve clients and offset the increased costs the legislation will bring.

  1. Get Reporting Systems in Order

The reporting requirements of MiFID II gives firms and regulators greater insight into the market, enabling them to monitor and identify emerging threats and potential instances of market abuse. Given the FCA’s more proactive regulatory approach in recent years, firms should expect to see the regulator pay close attention to how firms are utilising the information collected as part of their MiFID II compliance programmes and its own work to increase the effectiveness of its supervisory approach.

Firms should review their reporting systems and data infrastructure regularly to ensure that they are meeting regulatory expectations. Making full use of the insights available can also be used to inform strategy and ensure appropriate outcomes are being achieved.

  1. Keep on top of staff training and communications

Many employees are facing large scale changes to the way they perform their duties in the wake of MiFID II. It’s important that firms think beyond any initial training requirements and have plans in place to monitor compliance, reinforce expectations and deliver refresher training when issues or knowledge gaps are identified.

It’s also important that employees have a clear understanding of the standards and rules that apply to them and are held accountable for their conduct, particularly as the FCA turns its attention to rolling out the Senior Managers & Certification Regime (SM&CR) to the wider industry in the coming months.

  1. Explore the wider benefits of the legislation

In the face of such wide-ranging changes, it can be very easy to focus on the changes needed to comply with the regulations and forget to explore the wider benefits those changes could bring to the business and its bottom line.

Take MiFID II’s conversation recording requirements as an example. Having records in a secure and accessible format is key to demonstrating compliance, providing evidence in the event of a complaint and ensuring appropriate oversight of business activity, but the benefits don’t end there.

The data provided by recorded conversations can highlight areas where process efficiencies can be made, provide greater customer insight and can drive staff training and performance management programmes. The management information (MI) from conversation recording can also help firms identify where future risks lie across the business, not just those areas MiFID II impacts.

MiFID II is now in force, but firms shouldn’t relax just yet. In order to maintain compliance and meet regulatory expectations, firms need to be regularly reviewing their arrangements to ensure they continue to meet the appropriate standards and deliver consistent outcomes.

With a brief overview of end of year 2017, Andrew Boyle, CEO at LGB & Co., introduces Finance Monthly to 2018’s potential highlights, adding some thoughts on the prospects for crypto markets, new legislation and fintech.

Last year was an eventful year for financial markets. Globally, it was characterised by a continuation of the equity bull market, strongly performing debt markets and the surge in digital currencies. We expect this year to be equally exciting yet also challenging, with key issues likely to be whether the global bull market will run out of steam, whether disruption or collaboration will be the hallmark of Fintech’s impact on financial markets and if the significant increase in regulation will yield the benefits for which regulators had planned.

It was a banner 2017 for global equity markets, with the MSCI world index gaining 22.40% and reaching an all-time high. The US equity market was boosted by robust economic growth, strong rises in corporate profits, the Fed’s measured approach to unwinding QE and, latterly the potential of a fiscal stimulus from the much-anticipated tax reform bill. In the UK last year, the robust performance of the FTSE 100, was not only boosted by the weak pound since the Brexit vote, but was led by sector-wide factors that supported housebuilders thanks to the help to buy scheme, airlines, with the demise of Monarch and miners, as commodities enjoyed price rises against a weak dollar in a strong second half of the year.

Looking ahead to 2018, the global outlook for the markets might appear challenging. Valuations appear to be full, unwinding of QE may accelerate and bond markets are already showing signs of being spooked by rising inflation. However, it’s the first time since 2008 all major economies in the world are simultaneously growing, and despite being only the second week of the New Year, $2.1 trillion has already been added to the market capitalization of global equities. Growth still looks resilient and equity markets, particularly in the US, have been supported more by innovation in technology and innovative business models. With further advances of tech stocks underpinning the market, the outlook for equities looks more positive than a focus on the actions of central banks alone would imply.

Fintech has been heralded as a major force for disruption in financial markets. Yet looking forward it would appear that collaboration might be the model. Increased interest from large financial companies backing ‘robo’ investment – such as Aviva’s acquisition of Wealthify and Worldpay’s merger with Vantiv, illustrate this trend. Given this development, regulators are taking a closer interest in the impact of Fintech, keen to ensure if they are partnering with established financial institutions that there is no systemic risk to financial markets. One example of the interest from regulators and policy bodies is European Commission’s consultation on Fintech policy, potentially due out later this month.

Another key question is whether 2018 will see the ‘coming of age’ of cryptocurrencies. Bitcoin hit £12,000 in December last year, a month after the (CFTC) permitted bitcoin futures to be traded on two major US-based exchanges, the Chicago Mercantile Exchange (CME) and the CBOE Global Markets Exchange. Alongside widespread acceptance of cryptocurrency, this year may well see the BoE invest further in technology based on blockchain in order to strengthen its cyber security and potentially overhaul how customers pay for goods and services. It appears that the blockchain could lead to a change in the very concept of money, but also that the current speculative frenzy is overblown. The total value of the cryptocurrency market is at a new high of $770bn and a recent prediction from Saxo Bank states Bitcoin could reach as high as $60,000 in 2018 before it ‘inevitably crashes’.

One final thought is the impact of MiFID II - this presented financial services firms covered by its measures with some major challenges in the first weeks of 2018. Only 11 of the EU’s 28 member states have added flagship legislation into national laws and the sheer scale of legislation has raised questions that although far reaching, it is too ambitious and full compliance will remain difficult to achieve. Yet 2018 will not give companies any respite as both GDPR and PSD2 will be implemented this year. Roll on 2019 some regulation-fatigued financial firms may say.

With plenty of change coming in 2018, here Emmanuel Lumineau and Thomas Schneider, Founders of BrickVest, delve deep into the future of real estate for the coming year, prospects of growth and challenges ahead.

2017 was a strong year for the real estate industry. Despite a number of external factors that could have easily affected market performance, low interest rates remained stable and demand in real estate investment products continued to rise.

Brexit

Brexit has clearly had an effect on the UK but we believe that across Europe, there remains strong deal flow levels and investment opportunities. Our recent research1 showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in and ahead of the UK which was selected by a quarter (27%).

The UK saw a drop from 31% in the last quarter and from 32% in the same Barometer 12 months ago. The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year. 45% of UK, nearly a quarter (21%) of US, a fifth (19%) of French and 18% of German investors suggested they favour the UK this quarter, representing a decrease from last year across the board from 46%, 26%, 28% and 21% respectively.

Despite investors seemingly focussing away from the UK, there has been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.

Moreover the average risk appetite of BrickVest’s investors continues to rise to 52% from 49% last quarter and from 48% this time last year, meaning a sentiment shift from low to balanced risk

Interest rates

The Bank of England’s decision to raise interest rates in the UK in November was momentous for the economy and should signal the start of a series of gradual increases. The Bank decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. In contrast, the ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust.

Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.

Value in 2018

We expect to see increasing demand for real estate in 2018. Indeed our research2 showed that two in five (40%) institutional investors plan to increase their allocation to European commercial real estate while 44% expect commercial property yields to increase in the next 12 months, just 22% believe they will decrease.

We believe that the best value can be found in real estate deals that are not too sensitive to price erosions. Investors should keep a close eye on the risk of high leverage and DSC ratios. We believe that the best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy.

Investment strategy 2018

Given the fact that we believe demand will remain relatively high in 2018, one of the main challenges will be to find good deals.

Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit, escalation in the US vs. North Korea conflict, etc…

Institutional investors are investing in less liquid secondary and third level cities to achieve acceptable going-in cap rates (cap rates in major markets such as Paris are historically low). Investors will also be forced to look at less traditional investment products such as student housing, services apartments, and senior housing or industrial to get better returns. The overall risk of these investment is that they are in general less liquid and if the market bounces back, cap rates will also increase much faster than in downtown Paris.

In order to manage this problem, some institutional investors are now investing in real estate debt products so that they a.) have their exposure to real estate but b.) also have an achievable exit (i.e. when the loan maturity is reached). We think this might be smart strategy in 2018 given real estate prices are already very high and might fall in the long term (so no upside opportunity but also no real downside risk).

Sectors to watch

We continue to see the highest level of volatility from the office sector as many international firms put decisions on hold over their long-term office space requirements. Our research2 with institutional investors highlighted that more than a third (34%) believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.

Three in ten (31%) thought the industrial sector would present the biggest commercial real estate investment opportunities over the next 12 months while one in five (19%) cited the retail & leisure sector.

Mifid II

When implemented in January 2018, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the regulation of EU securities and derivatives markets, and will significantly impact the investment management industry. It will have a significant impact for wealth and asset managers on profitability, product offer and their distribution across Europe, operating models and pricing and costs.

As a consequence, we expect MIFID II to widen the gap between global, infrastructure-based players, and local players. Crowdfunding platform may be affected by these changes.

General Data Protection Regulation (GDPR)

GDPR comes into force on 25 May 2018 and represents the biggest change in 25 years to how businesses process personal information. The directive replaces existing data protection laws and will significantly tighten data protection compliance regulation.

Like other industries, real estate companies will have to conduct a risk analysis of all processes relevant to data protection.

The maxim that ‘failing to prepare is preparing to fail’ is particularly true when it comes to time-critical communication. Companies that take the time to formulate an effective rapid response framework can save both thousands of pounds and potential reputational risk.
Nino Sheikh-Thompkins, from Paragon Customer Communications, outlines how expert guidance can turn a potentially damaging situation into an opportunity to forge a better relationship with customers.

 

Be prepared to expect the unexpected

The advent of new legislation has generated an increased focus on how companies communicate with their customers. An integral part of this is rapid response communication – when a security breach, for instance, occurs or when there is a sizeable change in interest rates could have a far-reaching effect on a business.

Legislation focused on regulatory reform, such as the MIFID II – due to come into force in January – and the General Data Protection Regulation, which becomes law in May 2018, require businesses to have a clear strategy in place to ensure customers can be reached swiftly and effectively.

Regardless of statutory changes, there are a variety reasons why a business may need to communicate swiftly with customers. These include communicating unforeseen events such as price increases or sudden interest rate rises, to help clients better understand how they will be affected.

This is particularly pertinent in the financial sector, where engaged and informed customers are an important part of a well-functioning market; and to achieve this, people need access to appropriate information so they can make empowered decisions.

While some organisations may already have a rapid response plan in place which can be invoked as necessary, many others may have little or no experience of writing and distributing time-critical alerts.

Formulating a suitable, effective and detailed rapid response strategy may seem like a gargantuan task; however, extensive pressure will be put on resources to meet required deadlines if acting reactively. Without forward planning, the costs of delivery are likely to be increased by thousands of pounds – and up to around £120,000 in some cases.

The risk of using an ineffective or inappropriate method of communication is high, leading to further delays as a second wave of messages is sent and resulting in annoyance and confusion for the customer.

 

When time is of the essence

There are many options currently available, and new technology that can be employed to provide a rapid response alert in response to unforeseen circumstances is constantly being developed.

Choosing the most appropriate channel is a key factor in ensuring that seamless communication is achieved. Some organisations will have clients who have already expressed a preference on what form of message they prefer to receive, and this needs to be taken into account.

These include:
• SMS messages;
• Email communication;
• Printed letters distributed in the mail;
• A combination of all of the above.

Needless to say, in the event of a security breach, time is of the essence. The creation of pre-prepared, multi-channel templates, ready to be issued to customers with a tailored message, will save valuable time to comply with the 72-hour response deadline.

 

Is it achievable?

Many businesses may find their existing channels will not be adequate to deliver all aspects of an effective rapid response communication. A robust system will not only dispatch messages, but accurately trace their progress to ensure all customers have been reached within the right timeframe.

Working with a communications specialist will ensure both legal requirements and customer expectations are met. Leading experts will be able to manage any concerns surrounding accuracy, traceability and time frames. In fact, options exist for messages to be automatically deployed to a certain audience in the event that specific conditions are met – particularly pertinent in relation to the MIFID II 10% threshold rule.

An experienced rapid response provider will help organisations plan what action is required, create a choice of templates which can be swiftly edited as required, then trigger the delivery of the message, tracking, reporting and archiving as necessary. This will reduce the impact on the customer and preserve the integrity of the organisation, regardless of the scenario.

In summary, businesses assessing their existing provision should ask themselves:

• Can my current communication provider handle the multi-channel scale of my entire customer base?
• Do I know how best to communicate to each of my clients, balancing their preferences with regulatory requirements?
• Can the progress of each communication be traced, to ensure it is delivered within the necessary timeframe?

If the answer to any or all of these is ‘no’, it’s time to consult a communications expert to help plan, create and deliver an effective rapid response communications framework.

Website: http://www.paragon-europe.com/en-gb/content/paragon-customer-communications

With MiFID II looming, finance businesses across the UK will be reviewing their practices to ensure the way they work complies with the new regulations. Here, Alex Tebbs, Founder at VIA, explains what the regulations mean for the way we communicate as businesses, and how your business can comply come January 2018.

MiFID II is a targeted regulation update that aims to improve transparency and better protect both providers and customers of the finance sector.

In that sense, it exists to make things better for everyone; but with the January deadline looming and uncertainty still rife around the impact of Brexit on the update, many in the finance industry are still considering the best way to achieve compliance in their business.

It’s a regulation update made up of many facets, one being the requirement for businesses to record their communications in any instance where that conversation results in, or intended to result in, a transaction. Those communications must be retained - and be accessible when called upon - for five years after the event.

Creating a post-MiFID communications plan

In many ways, the communication requirements of MiFID II make a lot of sense. By recording our conversations, we can be sure that we are serving our customers in the best way, and that they are protected from any potential misunderstandings or misdemeanors.

But in today’s multi-device, multi-location business landscape, compliance isn’t so simple. While once we would have communicated on one device (likely a landline) and from one office, the reality of business today is that we often use multiple devices (and even encourage colleagues to bring their own devices) and operate across multiple locations, including remote working from home, offices in different countries and communications on the move.

This presents a challenge for finance professionals. How do we achieve compliance in this complex communications landscape?

The best place to start is with a review of your existing communications plan as a business. You’ll need to work out what platforms and devices are used to communicate, and make a record of all of those, as they will need to be included in your recording strategy. Be aware that this mightn’t be as straightforward as it sounds, and it’s likely to take time to uncover all the comms platforms in use.

The next step is then to work out how best to record those communications. On a landline, this would require hardware such as a microphone plugged into the handset. There are various apps that make it possible to record calls on a smartphone or via clients like Skype.

An alternative to this somewhat clunky process is to invest in a unified communications platform. This brings all your communication tools - smartphones, landlines, Skype, instant messaging, text - onto one platform which can be easily controlled from one portal, making recording and keeping those conversations a much easier, quicker process.

However you choose to manage your communications, one thing is clear; you will need to be able to both record, and keep, those conversations from January when MiFID II comes into play.

Security considerations in communications

It certainly won’t have passed by your attention that another sizeable regulation update is taking place in 2018; namely, GDPR, an update to data protection rules.

With GDPR putting renewed emphasis on security - and with MiFID’s requirements for comms recording - security should be placed firmly atop the agenda of financial firms.

There are various options on how we achieve security in communications. The most universally relevant and powerful is that of end-to-end encryption; with the main risk of unsecured comms being that communications could be intercepted en route, end-to-end encryption removes this risk by making the information, even when intercepted, entirely useless.

For those businesses using a unified communications platform, encryption and many other security considerations are included as standard, with large investments being made by those companies into stress testing their platforms and removing any vulnerabilities as soon as they are considered as a potential risk factor. For those using separate communications channels, a strict security testing strategy will need to be in place to ensure all communications are safe and private.

In terms of retaining those recorded conversations, security is a concern once again. Secure servers and storage areas are a must; consider also who has access to these recordings, and ensure they have a signed agreement in place that complies with data protection rules, and that your business’ data protection processes are up to date - especially as GDPR hits in May 2018.

MiFID II and the communications landscape

There is much left unknown about how MiFID II will affect finance businesses in the long run, and it’s likely that the implementation of its regulations will uncover complexities that need to be clarified as we move into the new year.

With that said, the communications element is prescriptive; finance professionals must record and maintain a record of all communications, regardless of device, platform or location. Is your business ready?

Vincenzo Dimase (@vincedimase), Head of Market Development, Trading at Thomson Reuters (@mifidii), gives an overview of MiFID II and the many different aspects of the financial market it will affect. Visit http://mifidii.com for more information.

As you may already know, MiFID II is just around the corner and some firms are already well on their way to compliance, however others remain either oblivious, unprepared or facing the many challenges in establishing steps towards compliance. Here Fabrice Bouland, CEO of Alphametry, explains for Finance Monthly what some of these challenges may be and what lies ahead for firms, in particular dealing with the different approaches regulators are taking in respect to the implementation of investment research unbundling.

On 3rd January 2018, new EU legislation comes into practice, part of which stipulates that investment research will have to be paid for separately. This marks an end to the historic model whereby much of it has appeared to be provided free of charge, or at least bundled in with other costs such as trading commission. Firms are now in a scrabble to the finish line as they put new processes in place and make decisions about how research will be sourced and paid for. Few, if any, are fully MiFID II-compliant and ready for January’s deadline. Yet as the clock ticks down, and daily stories emerge from buy and sell-side firms announcing their research pricing and budgeting plans, one fundamental question is often overlooked – how are asset managers and analysts determining the value of their research to ensure maximum value is generated from whatever approach they have decided upon.

Many asset managers have said they will be footing the bill for external research out of their own pockets. Most recently, BlackRock has joined the growing queue of firms which have decided to take this approach. Its announcement was quickly followed by a number of firms, including Schroders, Janus Henderson Investors, Union Investment and Invesco, backtracking on earlier decisions to pass research costs on to investors – all have now said they will be absorbing the costs themselves. Of course, bearing the cost internally will be much harder for smaller and mid-tier firms, many of which will have to reduce the volume and breadth of external research they have access too.

When it comes to pricing, we’ve seen some eye-wateringly high figures. Barclays outlined a system of tiered packages, starting at £30,000 for a ‘read only’ subscription to European research, rising to £350,000 for its ‘Gold’ package. The larger investment banks will, of course, charge more than their smaller rivals. Canaccord Genuity Group’s sell side unit in the UK released a figure of £75,000 a year for full access to the firm’s investment research and analysts, including dedicated sales and analyst calls and customised research requests. Similarly Alliance Bernstein LP’s is quoting firms around $150,000 a year for access to equity analyst reports and other services.

So what’s missing in this brief overview of the market and regulatory landscape? Better evaluation of research must undoubtedly play a role in how firms consume research in an unbundled world, especially for smaller managers with reduced budgets. Technology has a key role to play in accurately assessing and pricing investment research, as well as demonstrating full transparency in order to meet regulatory requirements. In many ways, this is a market crying out for innovation given that only 1% of research notes sent out are read by the buy-side, according to Quinlan & Associates.

In a digital, data-reliant world, traditional voting systems for research are slow and inaccurate. Evaluation must be bottom-up and data driven if firms are going to establish where reduced budgets need to be focused, and which providers deliver the best ROI. New research platform generation provide an opportunity for managers to better understand what they consume, as well as helping providers hone in on providing the most valuable and relevant content. There now exists a huge opportunity for asset managers to integrate innovative knowledge management solutions so that research can be targeted directly into the heart of firms’ investment process, giving them the best data from global sources, as well as supporting budgeting and payment decisions in a more detailed way

Clearly, there remains a lot to do over the next four months, and into 2018, to ensure firms are ready and compliant with MiFID II. The price discovery process continues to be very painful, not to mention the challenges asset managers face deciphering the varying nuances and interpretations of the legislation by different regulators, and how MiFID II will work globally.

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