Compliance in Financial Institutions: MiFID II Case Study Analysis

This case study examines the key features of MiFID II regulation compliance for a financial institution providing investment services to retail clients. It addresses the necessity of implementing suitability tests, detailing the crucial questions to be included. The analysis explores the options of offering investment funds managed by third parties versus the institution's own funds, outlining the strategic implications of each approach. Furthermore, the case study defines the pre-contractual information required for clients, along with the responsibilities of both the manufacturer and distributor regarding investment funds. The content of best execution trading venue reports is also discussed, alongside the training obligations necessary for compliance. The assignment provides a detailed breakdown of MiFID II's impact on financial services, incorporating regulatory guidance and practical considerations for compliance officers.

Financial Market and Institutes
Introduction
The European Securities and Market Authority published its final report for guidance on certain
aspects of MiFID II suitability requirements on 28 May 2018 through a press release. The document
deals with the framework:
Question 1
Answer 1
In terms of the guidance note published suitability is one of the prime area of concern for protection
of investor in the MiFID II framework. Further, the guidance states that it shall be applicable to
provision of any type of investment advice irrespective of independent or of dependent nature and
it shall also be applicable on portfolio management. Since, in the present case company provides
investment service, the suitability clause shall be applicable in terms of press release on guidance
dated 28-05-2018. (Bandyopadhyay, 2017)
The question of the test shall be obtaining following information like knowledge and experience of
client, source of income of client i.e. client financial institution, objective of client, time horizon,
constraints etc
Question 2
Answer 2
Yes, my entity can offer investment funds managed by third companies and also offer own funds to
the client. Under such an arrangement there shall be a clear indication of the same and proper due
diligence of the third party fund must be done periodically. (esma, 2014)
The consequences of the strategic approaches has been detailed as under:
(a) Under the third party controlled invested funds, there is lack of control over investment
strategy and the proposed actions are not in control of investing company. Further, there is
lower level of accountability
(b) Under self –funds, there is direct control and higher level of accountability.
Question 3
Answer 3
The pre contractual information client is required to be provided shall encompass the following:
(a) General Information about types of services offered by the company, website, details of
company etc;
(b) Description of the risk and nature of different instruments of financial nature;
(c) Categorisation of client;
(d) Policy of conflict of interest;
(e) Policy of order execution;
(f) Assessment of suitability and appropriateness;
(g) Cost and associated Charges etc.

With regard to investment funds the information to be prepared by the manufacturer is to ensure
that all the products related to investment are designed properly which satisfy the needs of the
market and are appropriately distributed to the focussed market. The actual risks is assessed, proper
information is made available to distributors and the investment products are reviewed at regular
intervals to ensure that the product is sold appropriately.
With regard to product distributors the product should be reviewed carefully they market in order to
assess the consistencies of the product with the market and whether the strategy is appropriate or
not.
Question 4
Answer 4
The Markets in Financial Instrument Directive introduced new kind of trading venue which
encompass the following:
(a) The Organised Trading Facility (OTF);
(b) Alongside Regulated Market;
(c) Multilateral Trading Facilities.
Further, for operating an OTF a person need to have an license of an investment firm as it is
designed to provide investment service
Further, the content of best execution trading venues report that the financial entity would be
obliged to report shall include information on market side of the transaction, information on any
associated allocation to the client. The details shall also include data on name and number of
financial instrument that has been purchased and disposed off, date and time when execution took
place, identification of client designation, person who took the decision along with computer
algorithm and others. (Glowacki, 2019)
The information about execution investment firm shall include the following:
(a) Identification of person who executed the trade;
(b) Computer Algorithm used etc.
The information about execution centre or trading venue shall include the following:
(a) Identification of the waiver under which the transaction has been carried out;
(b) Designation of short sale;
(c) Other details as stated above. Question 5
Answer 5
The training obligation shall encompass the following:
(a) Understanding of the basic requirement and obligations of the new regime or framework i.e.
MiFID II;
(b) Understanding the impact of MiFID II on the financial services and other allied products of the
company;
(c) Understanding the wide ranging impact across the European union and beyond;
(d) Reason for bringing MiFID II;
(e) Culture of Compliance.

Question 6
Answer 6
In terms of the new regulation of MiFID II , all calls which may/ will result in transaction shall be
recorded for a period of 5 years and there shall be a communication to customer that the calls are
being recorded. Further, the same shall be retrieved upon request.
In the present context, assuming that all commercial call may or will result in execution of trade it
shall be recorded. If the same does not have any impact on transaction, the same may not be
recorded. However, for safety company shall record all.
References
Bandyopadhyay, S., 2017. Guide to implementation of client suitability and appropriateness
framework for MiFID II. [Online]
Available at: https://www.finextra.com/blogposting/14460/guide-to-implementation-of-client-
suitability-and-appropriateness-framework-for-mifid-ii
[Accessed 24 March 2019].
esma, 2014. MiFID II/MiFIR. [Online]
Available at: https://www.esma.europa.eu/system/files_force/library/2015/11/2014-549_-
_consultation_paper_mifid_ii_-_mifir.pdf
[Accessed 24 MArch 2019].
Glowacki, M., 2019. MiFID II transaction reporting. [Online]
Available at: https://www.emissions-euets.com/mifid2reporting
[Accessed 24 March 2019].