MiFID II poses new challenges for banks and investment advisors, as these financial market reforms involve a host of new provisions. Financial firms have to act now to adapt their IT system architectures so as to meet regulatory requirements becoming effective in the near future. Smart and adaptable software solutions are needed.
One of the main regulatory responses to the 2008 financial crisis was adoption of the EU Markets in Financial Instruments Directive (MiFID II). This package of financial reforms is aimed in large part at strengthening investor protections, chiefly by enacting transparency regulations called for by the European Parliament regarding commissions in connection with investment advisory services. Financial institutions will thus be required to disclose prices, costs and payments from third parties to clients to a much greater extent and in greater detail than previously. This poses new organizational and technical challenges for banks and financial advisors.
“In the MiFID II directive, European legislators have acted more systematically than ever before to achieve transparency regarding payments and costs connected with sales and trading of financial products. In addition to the static calculations on positions carried which have been required so far, going forward valuations and trading volumes are to be estimated for future periods, showing cost effects on the investment portfolio. Implementing the capability to dynamically analyze all position and transaction data to comply with these requirements will take fund companies' back-office infrastructure to its limits."
No time to lose!
MiFID II is scheduled to come into effect on January 1, 2017 and the MiFIR regulations will in all probability be moved back to the start of 2018, the reason being that European regulator ESMA and the European Commission need more preparation time. Working out the content and technical standards in detail has proven more complicated than anticipated, thus financial service providers will likely only be informed of the final provisions this spring. However, the pressure is still on for IT departments to get systems ready for the additional requirements coming under MiFID II. Executive management and department heads are thus pondering over which approaches would be the most efficient to ensure compliance and to minimize implementation risk, as in ‘make or buy?'
“IT projects to implement processes for compliance with the many MiFID II provisions are complex, demanding much time commitment. But investing the time now to realize IT solution architecture adequate for meeting the challenges ahead is preferable to facing even more work later to go back and fix things," commented Thomas Messmer, CEO of financial software provider Sowatec.
Smart fee management
Financial software specialist Sowatec is offering a future-oriented solution for calculating and reporting on third-party commissions. The BRM (Business Rules Management) software calculo allows importing of master and transaction data via configurable interfaces. Third-party commissions (inducements) on the various investment products are to be calculated – for past periods, as applicable – based on a system of rules, and this data then flows into client reporting. A high-flexibility software solution. “An open solution and interface architecture makes it possible to rapidly and effectively respond to increased data volume and changing conditions as well as regulatory requirements," explains Messmer. calculo smoothly integrates into existing system environments and business processes, and was recently rolled out to a prominent global bank for client inducement reporting.
A glimpse of the future
The version 5 of calculo just released by Sowatec delivers significant further enhancements in terms of functionality, performance and user experience, including 'Scenario', an application for running management projections and simulations that affords easier decision-making and greater calculation accuracy. Rules and conditions can be changed to study possible market developments and generate sound and reliably indicative forecasts without any alteration of live master data or processes.