On 3 January 2018, the revised Markets in Financial Instruments Directive (MiFID II) will come into force across the European Union (EU).
MiFID II is the framework of legislation for the provision of investment services by banks and investment firms and the operation of trading venues.
Most of the measures being introduced under MiFID II will not impact directly on the services we provide to you, however, you will see some changes from 3 January and, in the meantime, we will ask you to update your personal data, so that we can meet our regulatory reporting requirements. A summary of the relevant changes is set-out below:
On a daily basis, we report every trade we have carried-out on your behalf to our regulator, the Commission de Surveillance du Secteur Financier (CSSF). The CSSF uses this information to identify suspicious trading activity, such as ‘insider dealing’ (the buying or selling of a security by someone who has access to price-sensitive, non-public information about the security). The transaction reporting regime has been enhanced under MiFID II and, from 3 January, we will be required to include the following personal data in each report:
Natural Persons (Single/Joint Accounts)
- First and last name
- Date of birth
- Nationality (including multiple nationalities)
- National identifier (click here for more information)
When you login to your account, if your national identifier is missing, you will be prompted to enter this information. If you do not provide this, we may be unable to provide the following services:
- Buying and selling investments
- Accepting certain corporate action instructions
- Margin lending through a Credit Lombard
If you are a national of more than one country, we will require the national identifier of the first of these nationalities when sorted alphabetically by its ISO 3166-1 alpha-2 code (click here for more information)
f you have both an EEA and a non-EEA nationality, we will require the natural person identifier of the EEA nationality.
If there are three or more holders on a joint account, you will need to submit your information by sending an email from the Secure Mailbox instead of using the online forms.
As we do not accept trading instructions from authorised third parties, including Power of Attorneys, we do not need to collect this information.
- Legal Entities (e.g. companies and trusts)
Instead of providing a natural person identifier, legal entities, must provide a Legal Entity Identifier (LEI).
- Appropriateness Assessment for ‘Complex’ Investments
When you ask us to buy ‘complex’ investments (e.g. derivatives) on your behalf, we are required to establish whether investment is appropriate. We do this by way of a standard questionnaire (the ‘Appropriateness Assessment’) that asks you about your knowledge and experience of relevant investments. If you do not have sufficient knowledge and experience, we may prevent you from buying the particular complex investment. For joint accounts, you will need to call us to complete the questionnaire.
Under MiFID II, the range of instruments we will treat as complex is expanded and may include some investment trusts, or ordinary shares if traded using margin lending i.e. with a Credit Lombard.
From 3 January 2018, MIFID II requires us to provide you with a much more detailed cost disclosure when you buy certain ‘manufactured’ investments (such as investment funds and ETFs). This consists of both our charges and the manufacturer’s charges. It also includes an illustration which shows the cumulative effect of these charges on the potential return of your investment.
1. What is an ex-ante (pre sales) cost disclosure?
MIFID II rules state that institutions are required to provide investors with information on costs likely to be incurred before or at the point of sale, before the investment is placed. Ex-ante disclosures are estimated and include assumptions on what growth may look like. Estimates should be reasonable within the assumptions described, but are unlikely to reflect actual return on investment. Pre-sale disclosures have been required on applicable instruments since early 2018. Where we have been unable to source external costs from the instrument provider, instruments have been blocked from purchases.
2. What is an ex-post (post sale) cost disclosure?
The MIFID II rules specify that institutions are required to provide investors with information about the total costs and charges actually incurred on qualifying instruments, at least once per year. The post sales disclosure document summarises these costs based on actual data, by instrument, so you can assess performance.
3. What is the difference between pre-sale and post-sale cost disclosures?
Pre-sale cost disclosures are a reasonable estimate of costs before they are incurred, whereas post-sale disclosures are based on actual costs after they have been incurred within a portfolio.
4. How are post sales costs and charges presented?
Example of a Post Sales Disclosure. (embedded Link) A cover page explains how the figures have been calculated and prepared, while the remainder of the document details the values for each qualifying instrument that you have held or traded during the reporting period.
5. When are post-sale disclosures published?
Internaxx works with its service providers to source the required data for reporting. Reporting for the period from January to December 2018 will be published in June.
6. Where can I find my Post Sales Cost Disclosure report?
The report is available on the Documents page on the secure website, accessible by selecting Document Type “Cost Disclosures” in the drop down.
7. Which instruments do I receive cost disclosures for?
If you are a retail client resident in the EEA and traded or held your instrument during the reporting period and/or received a pre-sales disclosure document for your trade, then you will receive a post sales disclosure document for that instrument. All costs are broken down by instrument. In broader terms, the Bank provides information for instruments in line with the regulations which include Funds, ETFs & Investment Trusts. Equities or defunct stocks are not in scope of these regulations.
8. What costs and charges need to be disclosed?
Information needs to be provided about all costs and charges. This includes Internaxx’s costs, as well as product manufacturer costs, and all other costs and charges associated with the investment, such as Stamp Duty, and tax on dividends. Dividend income is not included in the net performance result of the instrument and should be considered separately.
9. What are product manufacturers and distributors?
A product manufacturer (e.g. Blackrock) is a firm which creates, develops, issues and/or designs investment products. Internaxx is a distributor, which means it makes instrument products available for trading to its customers.
10. Are there costs and charges that are excluded?
All costs and charges that could be directly linked to the individual investment are included. However, Internaxx also levies account level charges for services such as quarterly administration fees, cash withdrawal fees and debit interest. These charges are not included in the post-sales costs disclosure as they cannot be uniquely pro-rated to the investment impact.
11. Are government charges included in the figures?
Yes. Where applicable Government charges such as income tax, stamp duty and VAT are included.
12. What data is used to compile product manufacturer costs?
Internaxx calculates product costs based on data provided by Morningstar, or as described below.
13. Further information in respect of manufacturer costs and charges.
a. In most cases, product manufacturers have provided an ‘effective from’ date alongside the % cost to be applied, but sometimes this date does not cover the whole year. In order to be able to meet the requirement to provide an illustration for the whole year, we have assumed that this rate should be applied to the whole year, and we have based our calculation on this assumption. This means that we are effectively providing you with an estimate for part of the year. This estimate should not differ materially from actual figures.
b. Non-European Union providers have no obligation to comply with the new rules. As such, data has been sourced on a best endeavours basis using published information.
c. In relation to Real Estate Investment Trusts (REITS), only those classified as Alternative Investment Funds are captured under the new rules.
d. In a very small number of cases we have been unable to source data from Morningstar or directly from the manufacturers. In these scenarios we have used a proxy based upon a sector average of similar instruments.
e. The product transactions costs are the costs associated with buying and selling the underlying securities within the fund. The transactions costs disclosed under MiFID II are not a new additional cost. They have always been involved in managing a fund and are already fully reflected in the price of the instrument. However, this is the first time they have had to be disclosed separately and expressed in percentage and monetary terms.
13. My investment underwent a corporate action last year.
Where an instrument ceased to be traded through the year, or was transformed in any way, Internaxx provides two illustrations: one for the trading value up until the corporate action event, and one for the period from the corporate action date until the end of the year. In other words, you have illustrations for the lifecycle of each instrument.
- Reporting on 10% depreciations in leveraged instruments
When you buy a leveraged financial instrument (e.g. a leveraged ETF), we will notify you if the value depreciates by 10% (and thereafter at multiples of 10%).