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MiFID II for professional intermediaries

Depreciation reporting

Under MiFID II there is a new requirement for notices to be sent to our clients when a Discretionary Managed portfolio depreciates in value by 10%, or in further 10% increments thereafter, since the beginning of a quarterly reporting period.

There is also a requirement to send client notices where a leveraged instrument held within any client portfolio depreciates in value by 10% from its acquisition cost, or in further 10% increments thereafter.

How this will work in practice depends on how the portfolios are held.

Where we hold client portfolios within our nominees, we will provide the notices as and when required. These will be provided in accordance with the stated communications preference. With portfolios managed for professional intermediaries on an Agent as Client basis, as per our standard reporting these notices will be provided to you, the intermediary. Subject to their own client agreements, Financial Advisers may conclude that they should forward these notices to their underlying clients.  To assist with this, Charles Stanley shall be providing the notifications to all recipients of the quarterly investment reports, which can include the underlying client if you so request.

Where mandates are managed on an investment platform, we will not have all the information required for a depreciation report, because only the platform will know the actual performance of each actual portfolio, when taking into account the proportion of each held in cash, as well as differences in investment timings, transfers, allocations, and other adjustments, including for other mandates that may be held within the same portfolio. This information will not be available to Charles Stanley and, as a result, we believe that platforms are best placed to issue these notices. We are engaged with them to ensure that this meets with their own plans for MiFID II.

Costs & charges disclosures

Under MiFID II, there will be two principal changes to our client reports:

At client on-boarding we will provide an illustration of total annual costs. Intermediaries will be able to incorporate this into their own proposals.

Our standard periodic investment report, which will be provided quarterly from next year, is being developed to include a summary of total annual charges - our own service charges and any product charges, plus other costs such as stamp duty. As with all our reports, these would be sent to intermediaries, although copy reports direct to clients can also be provided on request.

 Natural Persons Identifiers (NPIs) and Legal Entity Identifiers (LEIs)

Following the global financial crisis, global regulatory authorities have been developing systems whereby all financial transactions can be monitored in order that they can accurately police market integrity. This will help to prevent market abuse and manipulation, which is in the long-term best interests of all honest investors.

Amongst the changes is a requirement for all investment clients to have a unique identifier, thereby assisting regulators in their monitoring of stockmarket activity. As a result of the new regulation, we are required to ensure we hold key information on our clients. Without this, from 3rd January 2018 we may be unable to continue to trade for clients or undertake trades on their behalf.

There are two types of unique identifier, depending on the type of investor:

  • Natural Person Identifiers (NPIs) for individuals (natural persons); and
  • Legal Entity Identifier (LEIs) for other investors, such as trusts, charities and companies.

For investors who are natural persons, we require their Natural Person Identifier. This differs by country of nationality. For investors who are UK nationals, the NPI will be their UK National Insurance Number; this also includes the Channel Islands and the Isle of Man. For clients with foreign or dual nationality, the NPI may be different.

In addition, we also require the full first name, surname and date of birth for our natural person clients. Names should match passports.

Who must obtain a LEI?

Although not specifically defined in the regulation, legal entities that require an LEI include trusts (but not bare trusts), companies (public and private), pension funds (but not SIPPs), charities and other unincorporated bodies.

Investment firms like Charles Stanley must collect LEIs from such clients, but we will not also require NPIs on trustees and directors.

LEIs must be obtained from an authorised provider, which in the UK is the London Stock Exchange (UnaVista), and must be renewed annually. Investors can apply directly through www.lseg.com/LEI, or we may be able to assist, please speak with your usual Charles Stanley contact.

Intermediaries and LEIs

Where a Financial Adviser has client accounts with Charles Stanley on an ‘Agent as Client’ basis, we require the LEI of the Financial Adviser’s firm. This will be transaction reported to the FCA in place of the details of the underlying client, which has the advantage that your clients do not need to obtain separate LEIs themselves. This may differ at other DFM firms, depending on whether they have direct contractual relationships with the underlying investor.

Financial Advisers are responsible for obtaining their firms’ LEIs and Charles Stanley will be unlikely to be able to assist in obtaining them.

For accounts introduced to Charles Stanley where we have a direct contractual relationship with the mutual client, we do not require the LEI of the Financial Adviser’s firm. In such instances, we will require and report the identifiers for the client, be the client a natural person (the NPI, plus full first name, surname and date of birth) or a Trust or other entity (the LEI).

Charles Stanley’s LEI

Should you require it, the LEI for Charles Stanley & Co Limited is: 213800R62RPGBBLQRT21.