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The Markets in Financial Instruments Directive (“MiFID II”) comes into force on 3 January 2018 and will introduce a number of changes to the way financial services are provided to clients by MiFID firms. The focus of the MiFID II revision includes:

  • increasing investor protection
  • increasing product and market transparency
  • enhancing corporate governance.

As a client focused firm we are committed to working with our distributors and clients to ensure a seamless adoption of the new regulations. This is a dedicated area where we will host all of our updates relating to MiFID II.

How does GAM ensure compliance with MiFID II?

GAM is working on a group-wide MiFID II project, covering impact analysis and implementation of MiFID II for all affected GAM entities, business areas and client segments.

Under MiFID II, any MiFID firm providing discretionary portfolio management and independent investment advice is prohibited from receiving and retaining any third-party payments (inducements). MiFID firms providing non-independent advice and execution-only services will be able to retain retrocession payments, subject to any stricter requirements within their own national law.

As a consequence, we are analysing our current share class offering across all GAM Funds. This is to ensure that all MiFID firms which are affected by the regulations in the EU will be able to access a share class which allows them continuous compliance with applicable MiFID II laws and for the respective MiFID service they are providing. In particular, we intend to make available a clean share class to all MiFID firms, which will no longer be allowed to retain inducements.

We will provide further information regarding our share class offering as it becomes available and will also be happy to assist those MiFID firms which are impacted by the upcoming inducement ban with any share class switches that have to be completed by the end of the year.

Client information – target market definition, cost transparency & PRIIPs

MiFID II introduces new obligations on MiFID firms acting as product manufacturers and distributors. This takes the form of enhanced investor protection by requiring these firms to take responsibility for ensuring that the manner in which products and related services are designed and offered to clients is consistent with the interest of clients during all stages in the life-cycle of products or services.

In particular, firms that manufacture financial products will need to specify, as part of the product approval process, a target market of end clients for whose needs, characteristics and objectives the product is intended as well as a distribution strategy which is consistent with the identified target market.

Distributors are also required to understand the features of the investment products they offer or recommend and, using the information obtained from manufacturers and the information on their own clients, identify a target market of clients to whom products and services are intended to be provided. In order to support reviews by MiFID manufacturers, distributors must provide them with information on sales and, where appropriate, any other relevant information that may be the outcome of the distributor’s own periodic review.

The obligation of the product manufacturer and the distributor to identify the actual target market is not substituted by an assessment of suitability or appropriateness and has to be conducted in addition to, and before such an assessment. The defined target market for all GAM Funds will be made available to any MiFID firm, acting as distributor for GAM Funds.

MiFID II also requires that all costs and associated charges related to investment/ancillary services and financial instruments are disclosed to clients. This encompasses a wider range of costs than were previously required by MiFID I. We will also make available these aggregated costs for GAM Funds to MiFID firms, acting as distributors for GAM Funds, in order to allow them to meet their respective obligations towards end clients under MiFID II.

For both, target market information and costs and charges, we intend to implement an industry solution (EMT file), which includes such data in a standardised format. In addition, for investors affected by the PRIIPs regulation GAM intends to provide the relevant PRIIPs data in a standardised format (EPT, CEPT file) upon request.

GAM is closely following developments on a European level and will advise as more information becomes available.

Client categorisation

MiFID II contains provisions that have an impact on the current client categorisation under MiFID, which distinguishes between eligible counterparties, professional investors and retail investors. While MiFID II does not change the categories of client, nor the various monetary thresholds and experience levels that eligible counterparties and professional clients are required to meet, there will be some changes to how municipalities and local public authorities are able to be classified.

Under the existing regime for MiFID business, a local public authority may be categorised as a per se professional client if it meets the existing MiFID test for large undertakings. Under MiFID II, municipalities and local public authorities will be categorised as retail clients but such clients can request treatment as professional clients, provided they meet the qualitative and quantitative tests foreseen by MiFID II.

This reclassification is not expected to have an impact on the ability of any newly classified retail client to invest in registered UCITS funds. It might, however, have an impact on the client’s ability to access a range of alternative investment products for which qualification as a professional client is required, unless the client is meeting the qualitative and quantitative tests and has requested to be treated as a professional client.

Complex products

GAM will classify all its products into complex and non-complex products as required by MiFID II and make such information available to our clients. MiFID II requires MiFID firms to apply an appropriateness test for execution only transactions in complex products.

Best execution

MiFID firms are required to take all sufficient steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution, settlement size or any other consideration relevant to the execution of the order. Nevertheless, where there is a specific instruction from the client, the MiFID firms shall execute the order following the specific instruction. Additionally, MiFID firms are required to summarise and make public on an annual basis for each class of financial instruments the top five execution venues. The latest reports by entity can be accessed by following the links below:

GAM London Ltd.

GAM International Management Ltd.

Cantab Capital Partners LLP

Payments for research

GAM has decided to absorb all research costs from January 2018.

Market transparency

MiFID II introduces a range of measures and reporting obligations to increase the market transparency. As part of such measures, MiFID firms that execute transactions in financial instruments will be required to report complete and accurate details of such transactions to the competent authority as quickly as possible, and no later than the close of the following working day. We will comply with this requirement and all the other relevant regulations and required reporting obligations.