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Markets in Financial Instruments Directive – Important Information

PDF Private Investors click here for more information .

Institutional Investors - Please read below for more information.


What is MiFID?

MiFID represents the most significant regulatory change in the financial services industry since December 2001, and the introduction of the single regulator. MiFID replaces the Investment Services Directive (the ISD) which allows companies to do cross-border business in Europe. The intention of MiFID is to enhance the ability of investment firms to do this, by removing some of the existing barriers. The ultimate aim of MiFID is the development of a more competitive European marketplace.

What this means in practice is a degree of change to the regulatory structure within the UK. These changes are due to be implemented on 1st November 2007, which is also the implementation date for MiFID across Europe. This is the reason that Aberdeen Asset Management are communicating with clients.

Changes due to MiFID – Client categorisation

Under the existing regulatory regime, there are three client classifications – private, intermediate and market counterparty. The revised regulations also specify three categories of client – retail, professional and eligible counterparty. For the most part, clients can be mapped over directly from the existing classification to the new category i.e. private to retail; intermediate to professional and market counterparty to eligible counterparty (ECP). There are, however, some important differences between the regimes:

  • The thresholds between the categories have changed, resulting in more clients falling into the retail category;
  • The regulatory protections available to professional clients are more extensive than those applicable to intermediate clients, for example, a professional client cannot opt out of being due best execution;
  • Clients may elect to move between categories in order to obtain more or less regulatory protection. The criteria are now different, and the fund manager can refuse the request;
  • There is no longer a requirement for firms to carry out an annual review of client status, but a firm is obliged to re-categorise a client should they become aware of information which would reasonably lead the firm to conclude that the original categorisation is no longer suitable. If that were to happen, the client would be contacted and agreement would be sought.

Aberdeen Asset Management will not be categorising any clients as ECPs. Should a client wish to be assigned that category, they must contact Aberdeen in writing, at which point a decision will be made.

The communication received by clients from Aberdeen Asset Management contains details of the revised categorisation.

Changes due to MiFID – Best Execution

Under MiFID, firms executing orders for clients are required to obtain the best possible result for their client, taking into account various factors, including, but not limited to price, execution costs, speed, size, likelihood of execution and settlement. This obligation to deliver the "best possible result" applies when executing orders in all types of financial instruments, including fixed income and OTC products, and for professional as well as retail clients. Professional clients will no longer be able to waive this protection. In addition, under MiFID, for investment managers, the best execution obligation is expressed as provisions for ensuring that the manager acts in the best interests of the client.

Under MiFID, firms are required to establish and implement an order execution policy outlining how best execution will be achieved. Firms are required to obtain prior consent from clients to this policy, and prior express consent to trading outside of a regulated market or Multi-lateral trading facility (MTF). A copy of the order execution policy has been included in the communication, as well as a letter of consent which requires to be signed and returned. If you have not received this form, please contact your client relationship manager as a matter of urgency.

Firms are required to review execution arrangements and policies at least annually. Any changes to the policy will be made available on the Aberdeen Asset Management website. Any material changes will be notified to the client in writing, and, in certain situations, it may be necessary to seek further consent from clients.

Aberdeen Asset Management's order execution policy can be found here. Should you require any further details, please contact your client relationship manager.

Changes due to MiFID – Conflicts of Interest

The MiFID conflicts of interest requirements are more detailed than the current FSA requirements, and require firms to address conflicts in a particular way. The most significant change is that disclosure of conflicts is only an acceptable method of managing those conflicts where the conflict management arrangements that the firm has in place are not sufficient to ensure, with reasonable confidence, that the risk of damage to the interests of clients will be prevented. However, this does not prevent firms from disclosing conflicts which have been managed effectively. The new rules also expressly require firms, where relevant, to have regard to conflicts which arise as a result of the firm being a member of a group.

The rules require firms to use all reasonable steps to identify, record and manage conflicts which could pose a material risk of damage to clients. A firm is also required to have an effective conflicts of interest policy which is set out in writing. At the very least, the policy must identify the circumstances which constitute, or may give rise to a conflict of interest, and must specify procedures to be followed in order to manage such conflicts. Many conflicts which arise in the context of investment business are addressed by specific rules, for example, personal account dealing, gifts, benefits and other inducements etc.

In addition to the policy, Aberdeen Asset Management, in line with the revised regulations, maintains, and regularly updates, a record of all kinds of services and activities carried out by the firm in which a conflict of interest entailing a material risk of damage to clients has arisen or may arise.

Aberdeen Asset Management's conflicts of interest policy can be found here. Should you require any further details, please contact your client relationship manager.

View our question and answers section for more detail.

More information is available on the Financial Services Authority website.

http://www.fsa.gov.uk/Pages/About/What/International/
EU/fsap/mifid/index.shtml

Timetable

MiFID will be implemented on 1st November 2007.