Markets in Financial Instruments Directive II (MiFID II)

MiFID II is a European regulation which builds on the original regulation (MiFID I) that sought to make investing more transparent and to standardise regulatory disclosures required for particular markets. What that meant was all financial companies were required to be clearer about costs and charges, and explain them in a standard way.

MiFID II is the combination of the conclusions of the MiFID I review, and the EU implementation of the G20 commitments in response to the financial crisis in 2007/8.

The European Commission set out four objectives for MiFID II:

To strengthen investor protection.

To reduce the risks of a disorderly market.

To reduce systemic risks.

To increase the efficiency of financial markets and reduce unnecessary costs for participants.

MiFID II came into effect on 3 January 2018, changing the way we operate in the UK and Europe. It also impacts any clients around the world that invest in our UK and European domiciled products.

There are four main areas of change associated with MiFID II for Columbia Threadneedle Investments and our customers:

Research costs.

Costs and charges.

Target market.

Policies and procedures.

More information on the four main areas can be found below.

Research costs

MiFID II stipulates that any fees charged for external investment research applied to a fund have to be disclosed and reported to investors as a single charge, not bundled with other fees.

As an active manager, our investment process uses extensive in-house research supplemented with specialist external research. This enables us to selectively access broader knowledge to generate performance across our strategies.

Since January 2018, external research costs that we incur on your behalf have been, and will continue to be, paid for by Columbia Threadneedle.

We have maintained our extensive internal research activities and believe that our approach to third party research funding under MIFID II provides clarity and simplicity for clients.

Costs and charges

MiFID II requires investment firms to provide clients or potential clients with standardised information regarding their services and financial instruments (Funds).

MiFID II reinforces the existing costs and charges reporting, providing additional guidance and clarity on the costs and charges applied to client investments. The reporting includes costs and charges information regarding investment and ancillary services, the cost of advice, cost of financial instruments; the method of payment stated, and details of any third-party payments. Information about costs and charges is to be provided, where applicable, at least annually post-sale.

MiFID II has standardised the reporting of Costs and Charges for each fund, this is done by requesting all Asset Managers use the same template to report costs and charges called the European MiFID Template (EMT).

Columbia Threadneedle use the industry standard EMT to disclose costs and charges. The EMT is available to advisers through Silverfinch.

Charges can vary from fund to fund and between share classes. Further information about specific charges can be found in the relevant Fund Prospectus and on the Funds and Prices page of our website where you can search for your fund by name/ISIN.

Target market

We are required to identify and disclose the potential target market (who the fund is intended for) for each fund. The information that we will provide to investors includes:

Which type or types of investors the fund is compatible with based on their needs, characteristics and objectives.

Details of any group or groups of investors the fund is not compatible with based on their needs, characteristics and objectives.

Policies and procedures

We updated our policies and procedures across the whole of our business in relation to MiFID II. These include: Conflict of Interest, Complaints, Fund/Product Governance, Record Keeping and Best Execution.

The key aspects of the revised requirements for Record Keeping, Inducements and Conflicts of Interest are outlined below:

Record keeping
MiFID II requires ‘recording of conversations and communications with all clients where these relate to, or intend to lead to, the conclusion of a transaction, even where the transaction is not concluded.’ The FCA comments: “anything communicated from either the client or the adviser that could influence the client’s decision should be captured.”

Inducements Under

MIFID II, the acceptance of any fee, commission and/or non-monetary benefit (other than a minor non-monetary benefit) is prohibited unless otherwise permitted under relevant local rules.

Conflicts of interest
Under MiFID II, firms must also produce a ‘conflicts of interest policy’, setting out the firm’s policy in relation to identifying conflicts of interest which are potentially detrimental to the client, and specifying the procedures put in place to help prevent and manage such conflicts.

Best Execution View the Columbia Threadneedle Investments Order Execution Policy here.

Linked to the Order Execution Policy, you can also find details of the venues selected by each of our two MiFID investment management firms. These reports show whether we have either executed directly with the venue (i.e. in accordance with RTS28) or where we have placed with brokers for them to execute on our behalf (i.e. Article 65(6)). These show, for each class of instrument where applicable, the Top 5 venues selected by each firm. Our two MiFID firms are Threadneedle Asset Management Ltd and Threadneedle International Ltd.

View the Columbia Threadneedle Investments Annual Summary Best Execution Reports which show our “Top 5 Venues” (RTS 28 and Article 65(6), for each of our MiFID firms here.

European MiFID Template (EMT)

Columbia Threadneedle Investments now provides target market information and enhanced reporting of costs and charges across in scope fund ranges.

The European regulators have worked with the asset management industry to develop a standardised way of reporting this data – the European MiFID Template (EMT).

From January 2018 Columbia Threadneedle have used the EMT to disseminate the target market and costs and charges data to professional investors, which is updated on a monthly basis.

The European MiFID Template (EMT) – an overview

The EMT contains 65 fields in total and includes information on:

General Fund/Product information – Identification number/ data, name, currency and reporting date
Target Market Information
Investor type: Retail, Professional, Basic, Informed, Advanced,
Risk tolerances: Using PRIIPS and UCITS methodologies
Distribution Strategy for products: Execution only, Execution
Costs and Charges: Ex Ante and Ex Post reporting of the costs and charges

The EMT for our funds is available via the Silverfinch Regulatory Data Exchange, please register at signup.silverfinch.com.