The transparency of MiFID II costs and charges

As part of improving levels of investor protection afforded to clients, MiFID II requires investment firms to provide disclosure of costs and charges to enable clients to make more informed decisions about who they wish to trade with, and ultimately apply downward pressure on the charges which they pay.

In order to deliver all of the new requirements, firms have needed to develop suitable methodologies, design and implement technology solutions, and embed new processes and controls to manage the process of capturing data and providing disclosures. Given the scale of the requirements and changes required, many firms have deferred some non-critical day 1 activities and are using 2018 to complete or enhance what has already been implemented. Implementation has been further complicated because of a lack of specific or prescriptive regulatory guidance. This has, to some extent, left firms to develop their own approaches.

Our analysis of 32 sell side published disclosures shows that firms have adopted a wide variety of approaches to address the new requirements and have provided differing levels of transparency. Given the disparity, our view is that clients of sell side firms will find it difficult to perform meaningful analysis of costs and charges when choosing between firms and therefore it is not clear at this time that the new costs and charges regime will bring about the hoped-for benefits.

This paper draws on our experience of the regulation and highlights some of the key challenges that need further thought, and the potential outcomes for the industry as a consequence of the new costs and charges obligations.

It includes:

• An overview of the MiFID II costs and charges requirements.
• Key challenges that sell side firms have had to overcome.
• Our analysis of 32 sell side disclosures and what this tells us about the state of sell side disclosures.
• What some firms need to be doing in 2018 to optimise what they have already built.
• Implications associated with the new requirements both for the sell side firms producing the disclosures and end clients trying to perform comparisons.