Happy Dance – MIFID II Ex Post Costs & Charges Disclosures

Dec 20, 2018

Happy DanceI recently had an interview with Ellie Duncan of FT Adviser which was published. Amusingly, the title referred to the Fact that I was so happy with the FCA Interim Report that I did a “Happy Dance” through the office.

Those who are familiar with or have observed my talents in the fine art of dance will no doubt be aghast from the mere mental image – something that could cause physical harm or at least leave a lasting image that could never be unseen. It actually is, however, the sad and embarrassing truth.

A “Happy Dance” is a tribal display of happiness resulting from an underlying primal uphoria.

This uphoria is just what I experienced, and here is the reason why.

The FCA Interim report into platforms was a large report that had some key themes present. One significant theme was around disclosure of charges and the manner in which retail investors are presented with the information.

When we looked at the MiFID2 requirements for costs and charges reporting, and specifically the requirements for Ex Post Cost and Charges reporting, we thought that the generation of a physical statement once a year, with bundled up totals under categories that probably are not understood by retail investors, did not achieve the goal of assisting retail investors to understand how much they are paying and to whom.

The FCA seemed to agree with this synopsis and suggested that the MiFID2 regulation only went part of the way towards their end game.

FinoComp’s approach when developing our CoCa product was to:

  • Allow further categorisation to enable not only the regulatory categories to be summarised, but also more understandable categorisation such as whom the charges were paid to;
  • Have the information readily available for use not only within the regulatory required statements but also available for online portal access as and when required;
  • Have the information readily available throughout the year and not just at the end of the period so that online access can be sought at any time;
  • Incorporate accurate, bullet proof and complex performance calculations at all times.

The first reason for my happy dance was because our interpretation of the industry needs seems to have been strongly supported by the conclusions of the industry regulator. We didn’t just stop at the regulatory requirement but instead we built out the product to be an attractive propositional feature.

The second reason for my happy dance was because it really exemplifies the benefits of the microservices architecture; a topic that we are evangelical about. This is a typical component of functionality that monolithic systems would address only as absolutely necessary to cover the regulatory requirement or indeed would just provide base information and leave the calculation to the clients.

By taking something like the Ex Post Costs and Charges out as a separate Microservice, we are able to build it to be comprehensive, performant and always accessible. Better still, we are able to make it generic enough to interact with anyone’s registry system and implement it as an integrated standalone component. We are currently working with clients across 3 different back office systems.

For monolithic systems, the addition of this kind of functionality is considered as a small piece of functionality being added to a larger “more important” system; it is “treated like a pauper”. In the microservice architecture, the problem domain is the core purpose of that component and I like to think that it is “treated like a princess”.

These kinds of outcome really excite me and I am very much looking forward to releasing this new component into production environments in the next couple of months.

If a Rolls Royce solution to the ex-Post Costs and Charges is something that sounds desirable to your business, please contact us and you can join me in my Happy Dance.

Ray Tubman

CEO – FinoComp