Why do you need reference data in getting complaint with MiFID?

What is MiFID?

Markets in Financial Instrument Directive officially took effect on November 1^st 2007 was introduced by European Union to increase the cross border investment orders and aimed to integrate the European financial markets. Firms covered by MiFID are authorized and regulated in their home state (where they have registered office). Once firm has been authorized it can use MiFID passport to provide services to customers in other EU member states. In Pre MiFID directive, service was regulated by the member state in which service was taking place.

MiFID as per Investopedia http://www.investopedia.com/terms/m/MiFID.asp

To protect investors, MiFID requires investment firms to be authorized and to comply with various regulatory requirements including those concerning how business is conducted. MiFID recognizes that investors have different levels of knowledge, skill and expertise and that regulatory requirement should reflect this. MiFID does this through the use of categories of client. The application of specific regulatory obligations under MiFID depends on a client’s ‘regulatory’ category.

What is Reference Data?

In simple words, data that is used to define properties with reference to some transaction or deal. When we talk about reference data we mean Legal company data like Company name, Business address, Major shareholders, and regulatory data. All these information define characteristics of a company.

Financial Institutions like Banks need to classify their clients under MiFID directive, based upon their business and balance sheet data. Business here means what kind of business company is doing i.e. it is a credit institution, Investment management company or insurance company?

How Reference data can help your firm in MiFID client categorization?

Reference data covers all necessary information about a company, at one place that can speed up the process of client categorization. Before moving ahead lets take a look at the high level flow diagram that I have built for client categorization.

http://www.fsa.gov.uk/pubs/hb-releases/rel74/rel74cobs.pdf

Click on the image to enlarge

Based upon company’s primary business and regulatory information, we can decide its party type and subtype i.e. Regulated Company and Investment Management Company respectively. Reference data also covers balance sheet attributes for large undertaking test to categories private clients. Just by filtering party subtype information, firm can categorize its clients. Notification of new categorization should be sent to the client’s address that is covered by Business Address. Grandfathering can be implemented by using shareholder information. Our Reference data practice also covers major balance sheet attributes like Balance sheet total, Assets under management, and Turn over. Some times these attributes are not available in companies’ balance sheet directly; we enrich this information after calculating it from current balance sheet.

For more details on the attributes covered by Reference data please visit http://creditdimensions.com