The CNMV publishes Technical Guide 1/2020, on the procedures and criteria to be followed by SGIICs to select intermediaries and counterparties involved in the execution of transactions.

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This technical guide has been approved by the CNMV on 3 February 2020, whose criteria will be taken into account in its future supervisory actions. The criteria highlighted by the CNMV derive from its supervisory experience.

1.- Scope of application

The Guide refers to the operations carried out bythe SGIICs forthe CIIs and other client portfolios that they manage on a discretionary basis, including those belonging to pension funds, both directly and by delegation of third parties.

2.- Intermediary selection policies and procedures

  • CISGsshall select the entities to which they transmit orders, seeking to obtain the best possible result, in order to comply with the best execution principle and the duty to act in the best interests of the CIS and of the clients.
  • In doing so, they have to consider factors such as price, costs, speed and likelihood of execution and settlement, volume, the nature of the transactions, as well as the nature of the transactions:
    • The level of attention generally providedby the intermediary to the institution in connection with the execution of transactions.
    • The identification of investment opportunities by it, provided that they also benefit or are likely to benefit the IIC or managed portfolio other qualitative aspects or value-added services provided by the intermediary as part of its intermediation service from which the CIS or managed portfolio also benefits or may benefit.
  • The weight given to these factors bythe CISG shall be weighted according to the characteristics ofthe CISor clients, orders, financial instruments and intermediaries, investment policy and risks.
  • It also opens up the possibility for the SGIIC to appoint a single intermediaryentity provided that this is justified by the nature of the operation or by its marginal nature in terms of the assets under management. TheSGIICs must periodically monitor these aspects in relation to this entity.
  • CISGs shall adopt policies for the selection of intermediaries for each class of financial instruments, taking into account, in addition, the characteristics of the financial instrument, the market and the type of operation.

3.- Considerations on certain practices

  • The CNMVmakes a number of clarifications on certain practices which are generally considered inappropriate.
  • Fixing the same rates with all intermediaries without taking into account the particularities of the operation, as they must be negotiated on a case-by-case basis.
  • Select entities on the basis of simplifying operational tasks ofthe CISG, depositary or portfolio custodian.
  • Use intermediaries to channel orders to others for execution when costs and complexity of the process increase

4.- Evaluation procedures

The Guide places particular emphasis on the need to review periodically, and at least annually, the effectiveness of intermediary selection policies and procedures, and to make appropriate modifications to correct any deficiencies, where necessary.

In this sense,it is possible to review aspects such as:

  • The quality of the service provided by the selected entities.
  • The commissions agreed or effectively applied in transactions with explicit commissions are maintained at market conditions.
  • The terms and conditions generally offered by the selected institutions, taking into account the explicit and implicit costs associated with bilateral trading.
  • Any situation affecting the selected intermediaries (changes in solvency, corporate events…) as well as changes in market conditions or applicable regulations.

The Guidance states that the assessment will be made on the basis of information obtained by the CISG and on the basis of its own experience. This does not prevent them from collecting information from intermediaries to assess the quality of the service provided.

Finally,the SGIICs must be able to prove (by means of documentary evidence) the regular assessment of the selected intermediaries and counterparties. For this purpose, they may use merit scores, minutes of intermediary selection committees or documentary evidence of prices offered and negotiated at a given point in time.

5.- Delegation of the selection of intermediaries to third parties

CISGs may delegate the selection of intermediaries and counterparties,provided that the requirements set out in art.98 of the CIS Regulation and art.31 of the Commission Delegated Regulation (EU) 2017/565 are met.

The delegation of this function does not affect the responsibility of the SGIIC.

The cost of delegation may not be passed on tothe CIS, whereas it may be passed on to managed clients provided that the requirements and reporting obligations set out in art.50 of the Commission Delegated Regulation (EU) 2017/565 are met[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1583749541406{border-top-width: 2px !important;border-right-width: 2px !important;border-bottom-width: 2px !important;border-left-width: 2px !important;padding-top: 12px !important;padding-right: 24px !important;padding-bottom: 24px !important;padding-left: 24px !important;background-color: #f3f3f3 !important;border-left-color: #727272 !important;border-left-style: solid !important;border-right-color: #727272 !important;border-right-style: solid !important;border-top-color: #727272 !important;border-top-style: solid !important;border-bottom-color: #727272 !important;border-bottom-style: solid !important;}” z_index=””][vc_column][vc_column_text]

HOW CAN INTERAFI HELP YOU?

1.- Review and update of the SGIIC’s Intermediary Selection Policy to adapt it to the regulations in force and the CNMV Guide.

2.- Specialised consultancy to establish the appropriate criteria and weightings for the selection of intermediaries.

3.- Specialised consultancy to carry out the periodic evaluation of the effectiveness of the Intermediary Selection Policy. Generation and archiving of the documentary justification of the evaluations carried out.

4.-Interafi may assume, by delegation of the SGIIC, the function of selecting intermediaries and counterparties.[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_empty_space height=”48px”][/vc_column][/vc_row]