Asset Management Compliance in the EU

At the start of 2018, the Markets in Financial Industries Directive (MiFID II) changed how banks, financial firms and trading venues carried out business on behalf of their customers. Building on regulations initially introduced in 2007, MiFID II aims to encourage investor confidence and ensure the financial markets are operating in the fairest way possible. By encouraging firms to unbundle costs and make their processes and products more transparent, regulators are essentially hoping to democratise the markets.

Amongst the transformative changes – making up the biggest overhaul to the financial markets in a decade – include new rules on how asset managers pay for the research they use to make investment decisions.

For asset management compliance in the modern financial world, the cost of research will need to be unbundled from other services sold by brokers, to give investors transparency and ensure they understand exactly what they are paying for. This clarity helps to demonstrate the decisions made by asset managers as independent, in the best interests of the investor, and not influenced by receiving research.

Asset management compliance in 2018

Over £8 trillion of assets are managed in the UK, making the UK’s asset management industry the largest in Europe and the second biggest in the world. Understanding what’s required for asset management compliance is crucial, especially when dealing with such a large industry.


As part of MiFID II’s investor protection framework, investment firms need to make explicit payments for research.

Under Article 24 of MiFID II, investment firms who provide portfolio management services cannot accept fees, commission or benefits (both monetary and non-monetary) from third parties in relation to the provision of the service to clients. Minor non-monetary benefits can be accepted if they enhance the service provided to a client, and won’t affect the firm’s duty to act in the best interests of the client.

In order to achieve asset management compliance, asset managers will need to carefully consider what research they receive and be more selective about the research they pay for in future.

Transaction reporting

Another important element for asset management compliance are the changes to transaction reporting. Firms will no longer be able to rely on brokers to report their executions, and they’ll need to take on the responsibility themselves. Transaction reporting requirements are broadened under MiFID II, with a significant increase in the amount of data required and the scope of financial instruments that need to be reported on. Asset managers will need to get to grips with a greater number of asset classes, many of which will require a deeper understanding of market activity and behaviours.

Post-trade transparency

As part of MiFID’s guidelines around post-trade transparency, asset managers will specifically need to ensure the volume, price and conclusion time of transactions are publicly reported for each transaction. When asset managers are trading with EU firms, they will predominantly act as the buyer, so the other party will take on the post-trade transparency measures. However, when an asset manager is dealing with a party outside of the European Union, it will be the asset manager’s responsibility to ensure the post-trade transparency measures take place.

Best execution

The new requirements around best execution mean that asset managers will need to reassess day-to-day operations to achieve asset management compliance. As part of MiFID II, more detail is required in execution policies, and policies should be reviewed annually. For firms executing orders, they will need to publish their top five execution venues each year, while the amount of information required from trading venues has also increased.

To keep on top of the new requirements, asset managers will need to take continual action to demonstrate they have the best framework in place to review performances and policies. Essentially, asset management compliance is about taking action to ensure policies are effective, processes are transparent and clients are always being given the best service.

How compliance can help your firm

It’s almost a year since MiFID II came into effect, and the positive impact it has had on the industry is hard to miss. Around half a billion transaction reports have been processed by the FCA market data processor – an increase of 55% from the same period in 2017. The reports are also more detailed and provide a clearer image of the market, with the MiFID II guidelines now requiring buyer identification, the decision maker and the type of execution within the firm.

MiFID II doesn’t just help the market though – there are plenty of benefits of compliance for firms. Overhauling existing systems and investing in new technology might seem time-consuming initially, but your firm will benefit from more efficient processes and happier customers in the long run.

Solve customer conflicts faster

Working towards asset management compliance can also lead to a reduction in both internal and external conflicts. One of the main issues firms have faced in the past is that inadequate records of sales transactions have led to conflicts of interest and, therefore, a decrease in customer trust.

MiFID II’s stringent requirements around communication and transparency are designed to improve complaint resolution and give investors more security and clarity during transactions. By ensuring a firm’s record keeping processes are compliant, asset managers can avoid the issues that come with conflicting memories of conversations. Firms can resolve any disputes or complaints faster and with more certainty, without running the risk of damaging customer relationships.

Get the right solutions in place for asset management compliance

There’s never been a better time for finance firms to assess and improve their business models. The wealth of data collected from new reporting requirements can be used as part of ongoing compliance monitoring and risk assessment, and gives firms greater insight into how they’re interacting with clients. By developing a comprehensive end-to-end view on client conversations and transactions, a standard best practice model can be curated.

This means more effective communication and, obviously, a competitive advantage. To make the most of these new market opportunities, choosing the right technology is crucial.

eflow makes compliance simple. Our solutions are designed with you in mind, combining the benefits of an off-the-shelf solution with the flexibility and adaptability of something bespoke. Whether you’re focused on new reporting requirements or looking into secure data storage, eflow’s solutions can be easily integrated, and they’re fully compliant with all the latest regulations.

To find out more about asset management compliance and how we can help your firm to meet the latest requirements, contact us today.

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