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MIFID II and Non UCITS Retail Schemes

MiFID II will apply from 3 January 2018. One of the areas that is particularly relevant to AREF member funds that are Non UCITS Retail Schemes (NURS) is whether such funds should be regarded as “complex” or “non-complex”.
 
In a Q&A in June, the EU regulator, ESMA, implied that NURS should always be regarded as complex, whereas the FCA in the UK has taken the position that treatment of a NURS will depend upon its specific  characteristics, stating “Our view of the MiFID II provisions on complex and non complex financial instruments is that, as in MiFID, Non UCITS Retail Schemes (NURS) and investment trusts are neither automatically non complex nor automatically complex. They need to be assessed against the criteria in the MiFID II delegated regulation. When firms apply these criteria, they should adopt a cautious approach if there is any doubt as to whether a financial instrument is non complex.”
 
The tests to be applied in determining whether an investment in a fund is non-complex instrument are set out in Article 57 of the delegated regulation. The most subjective of the tests is the final one, "adequately comprehensive information on its characteristics is publicly available and is likely to be readily understood so as to enable the average retail client to make an informed judgment as to whether to enter into a
transaction in that instrument.”
 
We understand that most managers of AREF member funds are taking the view that they are non-complex. In view of the FCA comments on adopting a cautious approach where there is doubt, we would encourage managers to review the publicly available information for their retail clients.
 
John Forbes, John Forbes Consulting & Memeber of the Public Affairs Committee
 
19 December 2017