Specialist pensions law firm Sackers has set out steps pension scheme trustees should be taking as a result of MiFID II legislation coming into force in January.
MiFID II is generally seen as having more of an indirect than direct impact on pension scheme trustees, with the implications for them arising from the rules’ effects on asset managers and brokers.
For example, pension schemes that do not yet have a Legal Entity Identifier (LEI) need to get one so that their managers can continue to execute trades on their behalf.
The LEI is a 20-character, alpha-numeric code that was introduced globally in response to the financial crisis. Once a legal entity obtains an LEI code, the code is assigned to the entity for its entire life.
In the UK, the London Stock Exchange issues LEIs – the fee for initial registration is £115 plus VAT – but a full list of LEI issuers can be found on the Global LEI Foundation website.
One of the main changes being introduced by MiFID II is a requirement that asset managers pay separately for investment research and trading costs.
Trustees should be having discussions with their managers about charging structures as a result of this new rule, Sackers said – in particular about how research will be paid for in the future.
The vast majority of managers that have made statements on research unbundling have said they would be covering the cost of research rather than passing it on to clients.
Trustees should also review their managers’ policies on best execution and conflicts of interest, the law firm said. Under MiFID II managers will have to move from simply disclosing their approach to showing that best execution was achieved.
Trustees should understand the factors managers take into account in pursuing best execution and hold them to account, said Sackers.
MiFID II also imposes new reporting requirements on managers and changes to market infrastructure. Trustees should make sure the former are covered by any agreement they have with their managers, and ask managers how changes to market infrastructure could impact their scheme’s mandates.
Sebastian Reger, partner at Sackers, said: “MiFID II will significantly change the way financial markets operate, and we expect the full impact of these changes to emerge gradually over time. The most important message for trustees is to get familiar with the changes.
“Even though schemes won’t be directly affected, this is all about being alert to the indirect positive and negative consequences.”
Some of the changes would offer an opportunity to push for greater reporting transparency from asset managers, added Reger, but it would be up to each individual pension scheme to decide how far they want to take it.