The new investor protection framework under MiFID II will have a significant impact on the data flows between manufacturers, distributors, and the end-investor. Here, we highlight the challenges faced by firms as they work to comply with these new requirements and discuss potential ways forward for the industry at large.

Coming into force on 3rd January 2018, MiFID II introduces several new investor protection elements. These include fresh requirements on product governance, the extension of the current MiFID rules to structured deposits, and the strengthening of requirements in areas such as reporting to clients.

Despite the short timeframe, many manufacturers and distributors are still striving to comply with these rules. Live polling results from a recent webinar featuring experts from Silverfinch, PIMFA, and ICE Data Services, indicate that 39% of firms are not even halfway on their journey towards readiness. A further 11% say they are categorically “not ready” for MiFID investor protection measures. The reasons for this vary between firms, and between manufacturers and distributors, yet some common challenges are emerging:

Defining the Target Market and Distributing Data

The new product governance requirements under MiFID II are designed to ensure that manufacturers and distributors of financial instruments act in the clients’ best interests during all stages of the product / service life-cycle. One of the most important – and difficult – aspects of this is the target market assessment.

According to ESMA’s guidelines for manufacturers, target market identification should consider, among other points, product characteristics including: complexity, risk-reward profile, liquidity, or even the innovative nature of the product. Identifying the precise target market is therefore especially challenging for collectives, structured products, and packaged products. But the bigger conundrum comes with the need to communicate that target market data from the manufacturer down to the distributor.

This data is required to help distributors fulfill their MiFID II product governance requirements, which are even more detailed than those placed on manufacturers. While this data is not sensitive per se, and can therefore be routed through market data vendors, the challenge is how manufacturers can disseminate the data down to hundreds of intermediaries in an efficient, standardized manner. As such, both parties need to carefully assess what their target market data needs are, and investigate solutions that enable this data to be disseminated by manufacturers and collected by distributors – in one place.

Obtaining Costs and Charges Data

MiFID II also requires distributors to provide clients, and potential clients, with appropriate details of all costs and charges within ‘good time’. From a data perspective, this requires an effective means of communicating costs and charges data – both ‘ex-ante’ (pre-sale) and ‘ex-post’ (post-sale) – to be established across the distribution chain, including manufacturers.

There are multiple challenges here, not least the timeline. The ex-ante costs will be required as of 3rd January 2018 – and the ex-post costs will be disclosed before the end of 2018 utilizing data of actual costs over the previous year. Given the volumes involved, distributors ideally need to be receiving costs data from their manufacturers at least two months before year-end in order to feed it into their systems. If not, they risk missing the deadline. Many firms are therefore looking to data vendors to assist with this.

There may, however, be a handful of instruments that fall beyond the reach of vendors, such as non-European products. A distributor with a US mutual fund in its portfolio, for example, may have no other option but to ascertain the product cost from published information sources in the US.

With this in mind, firms urgently need to identify any instruments in their portfolio where MiFID II data is required but the characteristics of the instrument mean that the data many not be readily available from an existing provider. Firms also need to engage with their vendors sooner rather than later around onboarding the full requirements of their portfolio to ensure coverage from all their manufacturers.

Format Uncertainty and Inconsistency

Nothing is, or will be, mandated in MiFID II regarding the format in which data should be transferred from manufacturers to distributors. Yet standardization is clearly required.

The good news is that the EFAMA European Working Group’s European MiFID Template (EMT) has been ‘unofficially’ adopted to help solve this issue for target market information – and now costs and charges. Nevertheless, there are likely to be instruments which are not covered by the EMT template during the bedding down period, so firms should be prepared to deal with outliers.

Moreover, while product data on an EMT template should in theory look the same, data must be inspected by distributors to ensure consistency. It is a risk to assume that each manufacturer has completed the template in the same way – and that the data is ‘good’ by default.

Sales Suitability Reporting

Under MiFID II, manufacturers of products will also need to collect information from their distributors confirming whether products have been sold to a suitable investor – i.e. according to the target market information. One aspect that remains unclear, however, is how distributors will accurately define sales as being ‘inside the target market’, ‘outside the target market’, or ‘in the negative target market’.

Also uncertain is whether distributors will report every transaction back to the manufacturer, thereby shifting the burden for determining where the sale fell in terms of the target market, or whether distributors will only report exceptions upstream. In addition, the protocol for remediation, in instances where a manufacturer receives an adverse report, is unclear.

What is clear, however, is that distributors are taking their responsibilities around sales suitability reporting extremely seriously. Although it has traditionally been carried out in-house, 44% of webinar attendees are now using intermediaries for sales reporting. And while 22% are as yet undecided on their sales suitability reporting strategy, anecdotal evidence suggests that they are searching for a one-stop-shop arrangement, plugging them in to all the necessary manufacturers in a way that keeps their sensitive data secure.

Lack of Coordinated Industry Action

While it may not be data challenge as such, another significant hurdle facing the industry right now is the lack of working groups targeting the above issues – at least ones that represent the interests of both manufacturers and distributors equally – and setting out to find common solutions.

Ultimately, manufacturers and distributors both have significant obligations to meet under MiFID II’s new investor protection regime. And with many other regulatory, operational, and financial burdens to contend with, a dialogue to help both parties meet their obligations with the minimum amount of upheaval can only be beneficial.

The age of the utility

Data vendors also have an important role to play in this industry discussion. After all, as much as distributors can connect directly to each manufacturer for data exchange, attempting to do so on a large scale, will not only be extremely complex, but it will also be unachievable before the 3rd January deadline. Likewise, manufacturers looking to communicate target market data to a large number of distributors, will face significant inefficiencies without data aggregation exchanges.

ICE Data Services is in discussion with Silverfinch to offer one such data utility. It enables manufacturers to deliver their EMT content to a single location, and from this, the data, aggregated with other Manufacturers’ EMT content, is securely and efficiently delivered to the distribution network. For distributors, access to the Utility via ICE Data services ensures that distributors have all the information they need to meet their MiFID II requirements via a single interface, whilst also facilitating the return delivery of sales suitability reporting to the manufacturer.

In short, the solution supports permissioned and secure exchange of data end-to-end – delivering efficiency benefits for both manufacturers and distributors through a significantly simplified workflow.

To find out more about how we are helping our clients to become MiFID II compliant, visit

Find Out How ICE Can Help Your Firm Overcome its MiFID II Challenges

Contact Us