MiFID2 Delegated Regulation –April 2016
CHAPTER III
OPERATING CONDITIONS FOR INVESTMENTFIRMS
SECTION1
INFORMATION TO CLIENTS AND POTENTIALCLIENTS
Article44
Fair, clear and not misleading informationrequirements
(Article 24(3) of Directive2014/65/EU)
1.Investmentfirmsshallensurethatallinformationtheyaddressto,ordisseminatein such a way that it is likely to be received by, retail or professional clients orpotential
retail or professional clients, including marketing communications, satisfiesthe conditions laid down in paragraphs 2 to8.
2.Investment firm shall ensure that the information referred to in paragraph 1 complies with the followingconditions:
(a)the information includes the name of the investmentfirm,
(b)the information is accurate and always gives a fair and prominent indicationof anyrelevantriskswhenreferencinganypotentialbenefitsofaninvestment service or financialinstrument,
(c)the information uses a font size in the indication of relevant risks that is atleast equaltothepredominantfontsizeusedthroughouttheinformationprovided, as well as a layout ensuring such indication isprominent,
(d)theinformationissufficientfor,andpresentedinawaythatislikelytobe understoodby,theaveragememberofthegrouptowhomitisdirected,orby whom it is likely to bereceived,
(e)the information does not disguise, diminish or obscure importantitems, statements orwarnings,
(f)theinformationisconsistentlypresentedinthesamelanguagethroughoutall forms of information and marketing materials that are provided to eachclient, unless the client has accepted to receive information in more thanone language,
(g)the information is up-to-date and relevant to the means of communicationused.
3.Where the information compares investment or ancillary services,financial instruments, or persons providing investment or ancillary services, investmentfirms shall ensure that the following conditions aresatisfied:
(a)the comparison is meaningful and presented in a fair and balancedway;
23Directive2014/49/EUoftheEuropeanParliamentandoftheCouncilof16April2014ondeposit guarantee schemes (OJ L 173, 12.6.2014, p.149).
(b)the sources of the information used for the comparison arespecified;
(c)the key facts and assumptions used to make the comparison areincluded.
4.Wheretheinformationcontainsanindicationofpastperformanceofafinancial instrument, a financial index or an investment service, investment firms shallensure that the following conditions aresatisfied:
(a)that indication is not the most prominent feature of thecommunication;
(b)the information must include appropriate performance informationwhich covers the preceding 5 years, or the whole period for which thefinancial instrumenthasbeenoffered,thefinancialindexhasbeenestablished,orthe investment service has been provided where less than five years, or suchlonger period as the firm may decide, and in every case that performanceinformation is based on complete 12-monthperiods;
(c)the reference period and the source of information is clearlystated;
(d)the information contains a prominent warning that the figures refer to thepast and that past performance is not a reliable indicator of futureresults;
(e)where the indication relies on figures denominated in a currency other thanthat of the Member State in which the retail client or potential retail clientis
resident,thecurrencyisclearlystated,togetherwithawarningthatthereturn may increase or decrease as a result of currencyfluctuations;
(f)where the indication is based on gross performance, the effect of commissions, fees or other charges aredisclosed.
5.Where the information includes or refers to simulated past performance,investment firms shall ensure that the information relates to a financial instrument or afinancial index, and the following conditions aresatisfied:
(a)the simulated past performance is based on the actual past performance ofone ormorefinancialinstrumentsorfinancialindiceswhicharethesameas,or substantially the same as, or underlie, the financial instrumentconcerned;
(b)in respect of the actual past performance referred to in point (a), theconditions set out in points (a) to (c), (e) and (f) of paragraph 4 aresatisfied;
(c)the information contains a prominent warning that the figures refer to simulated past performance and that past performance is not a reliableindicator of futureperformance.
6.Where the information contains information on future performance, investmentfirms shall ensure that the following conditions aresatisfied:
(a)the information is not based on or refer to simulated pastperformance;
(b)theinformationisbasedonreasonableassumptionssupportedbyobjective data;
(c)where the information is based on gross performance, the effectof commissions, fees or other charges isdisclosed;
(d)the information is based on performance scenarios in differentmarket conditions(bothnegativeandpositivescenarios),andreflectsthenatureand risks of the specific types of instruments included in theanalysis;
(e)theinformationcontainsaprominentwarningthatsuchforecastsarenota reliable indicator of futureperformance.
7.Wheretheinformationreferstoaparticulartaxtreatment,itshallprominentlystate that the tax treatment depends on the individual circumstances of each client andmay be subject to change in thefuture.
8.The information shall not use the name of any competent authority in such a waythat would indicate or suggest endorsement or approval by that authority of theproducts or services of the investmentfirm.
Article45
Information concerning clientcategorisation
(Article 24(4) of Directive2014/65/EU)
1.Investmentfirmsshallnotifynewclients,andexistingclientsthattheinvestment firm has newly categorised as required by Directive 2014/65/EU, oftheir categorisationasaretailclient,aprofessionalclientoraneligiblecounterpartyin accordance with thatDirective.
2.Investment firms shall inform clients in a durable medium about any right thatclient hastorequestadifferentcategorisationandaboutanylimitationstothelevelof client protection that a different categorisation wouldentail.
3.Investmentfirmsmay,eitherontheirowninitiativeorattherequestoftheclient concerned treat a client in the followingmanner:
(a)as a professional or retail client where that client might otherwise beclassified as an eligible counterparty pursuant to Article 30(2) of Directive2014/65/EU;
(b)a retail client where that client that is considered as a professionalclient pursuant to Section I of Annex II to Directive2014/65/EU.
Article46
General requirements for information toclients
(Article 24(4) of Directive2014/65/EU)
1.Investmentfirmsshall,ingoodtimebeforeaclientorpotentialclientisboundby any agreement for the provision of investment services or ancillary services orbefore theprovisionofthoseservices,whicheveristheearliertoprovidethatclientor potential client with the followinginformation:
(a)the terms of any suchagreement;
(b)theinformationrequiredbyArticle47relatingtothatagreementortothose investment or ancillaryservices.
2.Investmentfirmsshall,ingoodtimebeforetheprovisionofinvestmentservicesor ancillaryservicestoclientsorpotentialclients,toprovidetheinformationrequired under Articles 47 to50.
3.Theinformationreferredtoinparagraphs1and2shallbeprovidedinadurable mediumorbymeansofawebsite(whereitdoesnotconstituteadurablemedium) provided that the conditions specified in Article 3(2) aresatisfied.
4.Investmentfirmsshallnotifyaclientingoodtimeaboutanymaterialchangetothe informationprovidedunderArticles47to50whichisrelevanttoaservicethatthe firm is providing to that client. That notification shall be given in a durablemedium if the information to which it relates is given in a durablemedium.
5.Investment firms shall ensure that information contained in amarketing communication is consistent with any information the firm provides to clients inthe course of carrying on investment and ancillaryservices.
6.Marketing communications containing an offer or invitation of the followingnature andspecifyingthemannerofresponseorincludingaformbywhichanyresponse may be made, shall include such of the information referred to in Articles 47 to 50as is relevant to that offer orinvitation:
(a)an offer to enter into an agreement in relation to a financial instrumentor investmentserviceorancillaryservicewithanypersonwhorespondstothe communication;
(b)an invitation to any person who responds to the communication to makean offer to enter into an agreement in relation to a financial instrumentor investment service or ancillaryservice.
However, the first subparagraph shall not apply if, in order to respond to an offeror invitation contained in the marketing communication, the potential client mustrefer toanotherdocumentordocuments,which,aloneorincombination,containthat information.
Article47
Information about the investment firm and its services for clients and potentialclients
(Article 24(4) of Directive2014/65/EU)
1.Investment firms shall provide clients or potential clients with the followinggeneral information, whererelevant:
(a)the name and address of the investment firm, and the contact detailsnecessary to enable clients to communicate effectively with thefirm;
(b)the languages in which the client may communicate with the investmentfirm, and receive documents and other information from thefirm;
(c)the methods of communication to be used between the investment firm andthe client including, where relevant, those for the sending and reception oforders;
(d)a statement of the fact that the investment firm is authorised and the nameand contact address of the competent authority that has authorisedit;
(e)wheretheinvestmentfirmisactingthroughatiedagent,astatementofthis fact specifying the Member State in which that agent isregistered;
(f)the nature, frequency and timing of the reports on the performance ofthe servicetobeprovidedbytheinvestmentfirmtotheclientinaccordancewith Article 25(6) of Directive2014/65/EU;
(g)where the investment firm holds client financial instruments or client funds,a summarydescriptionofthestepswhichittakestoensuretheirprotection, includingsummarydetailsofanyrelevantinvestorcompensationordeposit guaranteeschemewhichappliestothefirmbyvirtueofitsactivitiesina Member State;
(h)adescription,whichmaybeprovidedinsummaryform,oftheconflictsof interest policy maintained by the firm in accordance with Article34;
(i)at the request of the client, further details of that conflicts of interest policy ina durablemediumorbymeansofawebsite(wherethatdoesnotconstitutea durable medium) provided that the conditions set out Article 3(2) aresatisfied.
Theinformationlistedinpoints(a)to(i)shallbeprovidedingoodtimebeforethe provision of investment services or ancillary services to clients or potentialclients.
2.When providing the service of portfolio management, investment firms shall establish an appropriate method of evaluation and comparison such as ameaningful benchmark, based on the investment objectives of the client and the types of financial instruments included in the client portfolio, so as to enable the clientfor whom the service is provided to assess the firm'sperformance.
3.Where investment firms propose to provide portfolio management services to aclient or potential client, they shall provide the client, in addition to theinformation required under paragraph 1, with such of the following information as isapplicable:
(a)information on the method and frequency of valuation of thefinancial instruments in the clientportfolio;
(b)detailsofanydelegationofthediscretionarymanagementofallorpartofthe financial instruments or funds in the clientportfolio;
(c)aspecificationofanybenchmarkagainstwhichtheperformanceoftheclient portfolio will becompared;
(d)thetypesoffinancialinstrumentthatmaybeincludedintheclientportfolio and types of transaction that may be carried out in such instruments,including any limits;
(e)themanagementobjectives,thelevelofrisktobereflectedinthemanager's exercise of discretion, and any specific constraints on thatdiscretion.
Theinformationlistedinpoints(a)to(e)shallbeprovidedingoodtimebeforethe provision of investment services or ancillary services to clients or potentialclients.
Article48
Information about financialinstruments
(Article 24(4) of Directive2014/65/EU)
1.Investmentfirmsshallprovideclientsorpotentialclientsingoodtimebeforethe provisionofinvestmentservicesorancillaryservicestoclientsorpotentialclients with a general description of the nature and risks of financial instruments, takinginto account, in particular, the client's categorisation as either a retail client,professional client or eligible counterparty. That description shall explain the nature ofthe specific type of instrument concerned, the functioning and performance ofthe financial instrument in different market conditions, including both positiveand negative conditions, as well as the risks particular to that specific type ofinstrument insufficientdetailtoenabletheclienttotakeinvestmentdecisionsonaninformed basis.
2.The description of risks referred to in paragraph 1 shall include, where relevant tothe specifictypeofinstrumentconcernedandthestatusandlevelofknowledgeofthe client, the followingelements:
(a)the risks associated with that type of financial instrument includingan explanation of leverage and its effects and the risk of losing theentire investment including the risks associated with insolvency of the issueror related events, such as bailin;
(b)the volatility of the price of such instruments and any limitations onthe available market for suchinstruments;
(c)informationonimpedimentsorrestrictionsfordisinvestment,forexampleas may be the case for illiquid financial instruments or financial instrumentswith afixedinvestmentterm,includinganillustrationofthepossibleexitmethods and consequences of any exit, possible constraints and the estimatedtime frame for the sale of the financial instrument before recovering the initialcosts of the transaction in that type of financialinstruments;
(d)the fact that an investor might assume, as a result of transactions insuch instruments, financial commitments and other additional obligations,including contingent liabilities, additional to the cost of acquiring theinstruments;
(e)anymarginrequirementsorsimilarobligations,applicabletoinstrumentsof thattype.
3.Where an investment firm provides a retail client or potential retail clientwith informationaboutafinancialinstrumentthatisthesubjectofacurrentoffertothe public and a prospectus has been published in connection with that offerin accordance with Directive 2003/71/EC, that firm shall in good time beforethe provisionofinvestmentservicesorancillaryservicestoclientsorpotentialclients
informtheclientorpotentialclientwherethatprospectusismadeavailabletothe public.
4.Where a financial instrument is composed of two or more differentfinancial instruments or services, the investment firm shall provide an adequate descriptionof thelegalnatureofthefinancialinstrument,thecomponentsofthatinstrumentand thewayinwhichtheinteractionbetweenthecomponentsaffectstherisksofthe investment.
5.In the case of financial instruments that incorporate a guarantee or capitalprotection, the investment firm shall provide a client or a potential client with informationabout thescopeandnatureofsuchguaranteeorcapitalprotection.Whentheguaranteeis providedbyathirdparty,informationabouttheguaranteeshallincludesufficient detail about the guarantor and the guarantee to enable the client or potential clientto make a fair assessment of theguarantee.
Article49
Information concerning safeguarding of client financial instruments or clientfunds
(Article 24(4) of Directive2014/65/EU)
1.Investmentfirmsholdingfinancialinstrumentsorfundsbelongingtoclientsshall provide those clients or potential clients with the information specified inparagraphs 2 to 7 whererelevant.
2.Theinvestmentfirmshallinformtheclientorpotentialclientwherethefinancial instrumentsorfundsofthatclientmaybeheldbyathirdpartyonbehalfofthe investment firm and of the responsibility of the investment firm under theapplicable national law for any acts or omissions of the third party and the consequences forthe client of the insolvency of the thirdparty.
3.Wherefinancialinstrumentsoftheclientorpotentialclientmay,ifpermittedby nationallaw,beheldinanomnibusaccountbyathirdparty,theinvestmentfirm shallinformtheclientofthisfactandshallprovideaprominentwarningofthe resultingrisks.
4.The investment firm shall inform the client or potential client where it is notpossible undernationallawforclientfinancialinstrumentsheldwithathirdpartytobe separately identifiable from the proprietary financial instruments of that third partyor of the investment firm and shall provide a prominent warning of the resultingrisks.
5.The investment firm shall inform the client or potential client where accounts that contain financial instruments or funds belonging to that client or potential client are orwillbesubjecttothelawofajurisdictionotherthanthatofaMemberStateand shall indicate that the rights of the client or potential client relating to thosefinancial instruments or funds may differaccordingly.
6.Aninvestmentfirmshallinformtheclientabouttheexistenceandthetermsofany securityinterestorlienwhichthefirmhasormayhaveovertheclient'sfinancial instrumentsorfunds,oranyrightofset-offitholdsinrelationtothoseinstruments or funds. Where applicable, it shall also inform the client of the fact that adepository may have a security interest or lien over, or right of set-off in relation tothose instruments orfunds.
7.An investment firm, before entering into securities financing transactions inrelation tofinancialinstrumentsheldbyitonbehalfofaclient,orbeforeotherwiseusing
suchfinancialinstrumentsforitsownaccountortheaccountofanotherclientshall in good time before the use of those instruments provide the client, in adurable medium, with clear, full and accurate information on the obligationsand responsibilitiesoftheinvestmentfirmwithrespecttotheuseofthosefinancial instruments, including the terms for their restitution, and on the risksinvolved.
Article50
Information on costs and associatedcharges
(Article 24(4) of Directive2014/65/EU)
1.For the purposes of providing information to clients on all costs and chargespursuant to Article 24(4) of Directive 2014/65/EU, investment firms shall comply withthe detailed requirements in paragraphs 2 to10.
Without prejudice to the obligations set out in Article 24(4) of Directive2014/65/EU, investment firms providing investment services to professional clients shall havethe righttoagreetoalimitedapplicationofthedetailedrequirementssetoutinthis Article with these clients. Investment firms shall not be allowed to agreesuch limitations when the services of investment advice or portfolio managementare provided or when, irrespective of the investment service provided, thefinancial instruments concerned embed aderivative.
Without prejudice to the obligations set out in Article 24(4) of Directive2014/65/EU, investment firms providing investment services to eligible counterparties shallhave therighttoagreetoalimitedapplicationofthedetailedrequirementssetoutinthis Article,exceptwhen,irrespectiveoftheinvestmentserviceprovided,thefinancial instrumentsconcernedembedaderivativeandtheeligiblecounterpartyintendsto offer them to itsclients.
2.Forex-anteandex-postdisclosureofinformationoncostsandchargestoclients, investment firms shall aggregate thefollowing:
(a)all costs and associated charges charged by the investment firm or otherparties where the client has been directed to such other parties, for the investmentservices(s) and/or ancillary services provided to the client;and
(b)all costs and associated charges associated with the manufacturing and managing of the financialinstruments.
Costsreferredtoinpoints(a)and(b)arelistedinAnnexIItothisRegulation.For the purposes of point (a), third party payments received by investment firmsin connection with the investment service provided to a client shall beitemised separately and the aggregated costs and charges shall be totalled and expressedboth as a cash amount and as apercentage.
3.Where any part of the total costs and charges is to be paid in or represents anamount offoreigncurrency,investmentfirmsshallprovideanindicationofthecurrency involvedandtheapplicablecurrencyconversionratesandcosts.Investmentsfirms shall also inform about the arrangements for payment or otherperformance.
4.In relation to the disclosure of product costs and charges that are not included inthe UCITS KIID, the investment firms shall calculate and disclose these costs,for example, by liaising with UCITS management companies to obtain therelevant information.
5.The obligation to provide in good time a full ex-ante disclosure of informationabout the aggregated costs and charges related to the financial instrument and tothe investment or ancillary service provided shall apply to investment firms inthe following situations:
(a)wheretheinvestmentfirmrecommendsormarketsfinancialinstrumentsto clients;or
(b)wheretheinvestmentfirmprovidinganyinvestmentservicesisrequiredto provideclientswithaUCITSKIIDorPRIIPsKIDinrelationtotherelevant financial instruments, in accordance with relevant Unionlegislation.
6.Investmentfirmsthatdonotrecommendormarketafinancialinstrumenttothe clientorarenotobligedtoprovidetheclientwithaKID/KIIDinaccordancewith relevant Union legislation shall inform their clients about all costs andcharges relating to the investment and/or ancillary serviceprovided.
7.Wheremorethanoneinvestmentfirmprovidesinvestmentorancillaryservicesto the client, each investment firm shall provide information about the costs ofthe investment or ancillary services it provides. An investment firm that recommendsor marketstoitsclientstheservicesprovidedbyanotherfirm,shallaggregatethecost and charges of its services together with the cost and charges of the servicesprovided bytheotherfirm.Aninvestmentfirmshalltakeintoaccountthecostsandcharges associatedtotheprovisionofotherinvestmentorancillaryservicesbyotherfirms where it has directed the client to these otherfirms.
8.Where calculating costs and charges on an ex-ante basis, investment firms shalluse actuallyincurredcostsasaproxyfortheexpectedcostsandcharges.Whereactual costsarenotavailable,theinvestmentfirmshallmakereasonableestimationsof these costs. Investment firms shall review ex-ante assumptions based on theex-post experience and shall make adjustment to these assumptions, wherenecessary.
9.Investment firms shall provide annual ex-post information about all costs and charges related to both the financial instrument(s) and investment andancillary service(s) where they have recommended or marketed the financial instrument(s)or wheretheyhaveprovidedtheclientwiththeKID/KIIDinrelationtothefinancial instrument(s)andtheyhaveorhavehadanongoingrelationshipwiththeclient during the year. Such information shall be based on costs incurred and shallbe provided on a personalisedbasis.
Investmentfirmsmaychoosetoprovidesuchaggregatedinformationoncostsand chargesoftheinvestmentservicesandthefinancialinstrumentstogetherwithany existing periodic reporting toclients.
10.Investment firms shall provide their clients with an illustration showingthe cumulative effect of costs on return when providing investment services. Suchan illustration shall be provided both on an ex-ante and ex-post basis. Investmentfirms shall ensure that the illustration meets the followingrequirements:
(a)the illustration shows the effect of the overall costs and charges on the returnof the investment;
(b)the illustration shows any anticipated spikes or fluctuations in the costs;and
(c)the illustration is accompanied by a description of theillustration.
Article51
Information provided in accordance with Directive 2009/65/EC and Regulation (EU)No 1286/2014
(Article 24(4) of Directive2014/65/EU)
Investment firms distributing units in collective investment undertakings or PRIIPsshall additionallyinformtheirclientsaboutanyothercostsandassociatedchargesrelatedtothe productwhichmayhavenotbeenincludedintheUCITSKIDorPRIIPsKIDandaboutthe costs and charges relating to their provision of investment services in relation to thatfinancial instrument.