SIX has spoken to BEST EXECUTION on the results of the European Securities and Markets Authority’s (ESMA) 2022 common supervisory action (CSA) and mystery shopping exercise on MiFID II requirements on information on costs and charges, which found a lack of disclosure of implicit costs to clients, among other red flags.
In February 2022, ESMA announced the launch of a CSA with national competent authorities (NCAs) on the application of MiFID II costs and charges disclosure rules across the European Economic Area (EEA).
Ralf Rühling, head of investor protection propositions, financial information, SIX said: “The issue with implicit costs is that because they are not easy to see, it is difficult for financial institutions to accurately quantify them. It could be, for example, a very specific transaction cost embedded in the bid-offer spread that has risen due to an unforeseen market event.”
Rühling added: “One of the ways in which financial institutions can look to elevate ESMA’s concerns around costs and charges is to begin re-evaluating what more can be done with their reference and market data.
“Embracing a standardised, more scalable service will enable firms to extract the reference and pricing information needed to meet the costs and charges rules under MiFID II.”
The CSA focused on ex-post information provided to retail clients and how NCAs would review how firms ensure that these disclosures are provided to clients in a timely manner; are fair, clear and not misleading; are based on accurate data reflecting all explicit and implicit costs and charges; and adequately show inducements.
ESMA also complemented the CSA with an ESMA-coordinated mystery shopping exercise on the ex-ante cost and charges information provided to retail clients.
While the 2022 CSA exercise revealed an adequate level of compliance with most elements of the ex-post costs and charges requirements under MiFID II, although with varying degrees across Member States, the exercise also revealed shortcomings and areas where there is a lack of convergence: there were significant differences across firms and Member States in the format and content of ex-post disclosures; differing practices and sometimes no disclosure of information on inducements; a lack of disclosure of implicit costs to clients; and a lack of consistency in the way firms illustrate the cumulative impact of the costs and charges on the return of the investment disclosing cost figures only in nominal amounts and not also the corresponding percentages.
Overall, 27 EEA NCAs participated in this CSA sharing knowledge and expertise at the level of ESMA throughout 2022 in order to foster supervisory convergence in the way they supervise the MiFID II rules on costs and charges disclosure.
Additionally, a total of 194 firms were included in the CSA sample, 118 of which were credit institutions (CIs), and 76 were investment firms (IFs).
NCAs used different supervisory approaches and carried out a total of 209 supervisory actions 46 of which were on-site visits to firms.
©Markets Media Europe 2023
