How MiFID II impacts on the LGPS

The implementation of MiFID II (Markets in Financial Instruments Directive) reclassifies local and public authorities as retail investors from 3rd January 2018.

Such a reclassification would severely limit both the financial instruments and providers available to authorities for pensions purposes which could be both costly and reduce the potential for returns.

Authorities should consider electing for a return to professional status in order to ensure they can access the full range of vehicles and managers to meet the needs of their investment strategy. The Board along with other stakeholders has successfully lobbied for the opt up tests proposed in the 2016 FCA consultation to better reflect the constitutions and decision making processes of authorities and has worked with industry bodies to develop the standard opt up process below. LGPS administering authorities are strongly advised to make use of this standard process and documentation in order to provide for a smoother opt up.

For information on opting up to professional status, please see the link in the menu on the right.

Relating as default retail clients - Q&A for managers and LGPS funds

Since January 2018 LGPS administering authorities have been default retail clients. This means if you haven't opted up with an asset manager or other MiFID service provider they will need to be careful how they communicate with you both directly and when at conferences. The Board together with the Investment Association, the British Venture Captial Association have developed a Question and Answer document to help LGPS funds and managers communicate in a way that meets regulatory requirements MiFIDQ&AMAY18.PDF (865.kb). Thanks to Simmons and Simmons for providing invaluable assistance

Action to be taken following elections

The FCA Handbook states that;

Elective Professional clients are responsible for keeping the firm informed of any change that could effect their current categorisation. The firm must the take ‘appropriate action’ which could include recategorising the client as retail.

Therefore if following the recent elections you have had a significant shift in elected members on your committee which will change the information provided on your opt up forms for example with respect to the average experience and/or training of the committee. You are strangely advised to notify the firms you are opted up with of these changes within a reasonable period of time which could be after you know which new elected members will be joining the committee.