Citrus Tree Consultants is pleased to publish this guest blog written by Nikhil Chouguley, a global expert in MIFID II Investor Protection. MIFID II is a significant financial framework in the Northern Hemisphere and indeed globally. 

Regulatory product data

As MIFIR’s regulatory reporting is deconstructed over East London soya lattes, the better half of MIFID II (i.e. Investor Protection) hasn’t surfaced on the tech disrupter’s radar. 

Regulation has become the driver of ‘reluctant’ change amongst the financial dinosaurs of Europe. Unfortunately, it’s compliance and not client innovation that wins the boardroom battle. Now MIFID II provides the regulatory business case for CTOs and their tech vendors to set in motion five-year strategic plans to replace their creaking IT infrastructure.

MIFID II Investor Protection has an impact on the entire wealth management value chain, with little scope to hide behind manual solutions.

Boiling the ocean

MIFID II is Europe’s RDR moment, set to go live in January 2018. Unfortunately, ESMA’s level III guidance is yet to be published, but the directive and delegated acts make it clear that holistic changes are required to the entire wealth management value chain; nine months aren’t enough to boil the regulatory-change ocean.

Investor Protection requires changes to product governance models, enhancements to product data-warehouses, front office distribution platforms, client reports, trade execution and back office systems. Can technology save the day? Probably not!

Low hanging fruit for CTOs

Product data is the foundation upon which MIFID II’s product approval, target market & suitability, product reviews and distributor oversight requirements can be delivered.

Upgrading the data-warehouses to host MIFID II product governance data (manufacturer’s target market, costs & charges, regulatory static data and disclosure documents) across funds, structured products and stocks is low hanging fruit, ready for implementation.

As industry associations across the UK, Germany and Europe collaborate to create their respective MIFID II product data templates and standards, the CTOs and product management functions should seize this opportunity to simplify their product nomenclature and data infrastructure. Driving further harmonization of product data standards across Europe will simplify product data management infrastructure across the Wealth Management value chain and in the process lower data vendor costs. The outliers will end up burning cash on a myriad of product data-mapping and conversion tables.

An invitation for FinTechs

MIFID II’s distributor oversight requirements have created a massive challenge for wealth managers to publish regulatory data. The regulation requires product distributors to provide alpha numeric sales MI on client types, sales channels, target market breaches and client complaints; on an aggregated basis to each product manufacturer whose product they have sold.

The infrastructural costs of creating and disseminating such data to each product manufacturer (500 + on average per distributor) as per their contractual data template would force the data analysts to break into a cold sweat.

This is an opportunity for plucky data vendors who already control the manufacturer–distributor downstream data infrastructure to create a commercial proposition for crunching distributors’ transactional data and reporting this upstream to the respective manufacturer.

Investor Protection regulation is an open invite for data FinTechs to connect the dots across Europe and turn themselves into the next tech unicorn.

Author: Nikhil Chouguley (Global Lead, MIFID II Investor Protection)

Nikhil is currently leading the global implementation of MIFID II Investor Protection at a leading European Bank. He is the co-founder of Resident (www.resident.tax), an international tax residence calculation app and has previously worked at the FCA and Barclays leading regulatory and FinTech programmes. See more about Nikhil Chouguley here.