Go-ahead for Danish sector solution for MiFIDII
Close collaboration between the Danish Investment Fund Association (IFB), the Danish tax authorities and the financial sector in Denmark, VP SECURITIES is now able to present a solution enabling investment funds to make a clean cut between funds with and without retrocession fees.
With the implementation in Denmark of MiFIDII by 1 July 2017, a restriction on inducements will be introduced, which means that banks are no longer allowed to receive and keep payments from investment funds if the clients have a portfolio management contract with the bank. The Danish tax authorities (SKAT) have approved a solution created jointly by IFB and VP where the said investors through a Corporate Action can be transferred from investment funds with trailer fee to investment funds without. The adaptation to MiFIDII is a costly process and therefore VP has assisted in reducing the costs for issuers by changing its ruleset, thus making it possible for issuers to inform investors about the Corporate Action through other channels than the usual investor notifications through VP.
“We have been working closely with IFB and we have succeeded in finding a feasible solution. IFB has been very dedicated and proactive in securing the most simple and cost-efficient solution possible to a major and complex challenge,” VP's Senior Product Manager Morten Skanning says. “We have managed to design a solution that meets the requirement for creating clean funds, however this also requires a lot from the Danish sector”.
It is estimated that the Corporate Action solution will be used in 200 out of the approximately 900 investment funds in Denmark. This major Corporate Action task is unusual in Denmark as it is a voluntary Corporate Action, meaning that only some of all existing investors are to be registered in order for VP to transfer these investors to funds without retrocession fees. It is expected that the total number of these Corporate Actions will make the transaction one of the biggest operational tasks over the last decade.
“Step by step we have moved forward, although we have had a lot of unknowns in the process,” IFB's Director Jens Jørgen Holm Møller says. “VP has been highly committed to finding ways for the sector and all participants to comply with the new requirements. I see the whole process as a prime example of good partnership within our sector, and the solution is the best possible for all participants.”
A recent information meeting held at VP in Copenhagen revealed a positive reception of the solution among the relevant parties. However, everyone who participated also recognised the comprehensive operational task involved in using a Corporate Action to transfer holdings from investment funds with trailer fees to investment funds without them.
BEC's Product Owner for Securities / Safekeeping Claus Dahl attended the meeting at VP: “It is a positive and manageable solution to use an existing Corporate Action and it is great to see VP take an active and responsible position aiding the sector to meet these external requirements related to MiFIDII,” he said.
Successful execution of the Corporate Actions is directly linked to the level of awareness of the banks of this task at hand. Therefore, VP has chosen to publish information on an ongoing basis. A hands-on manual created specifically for the task was published last week, and in May VP intends to publish a full list of the funds involved. All this information will be available to all interested parties via VP's Customer Center via vp.dk.
VP is set for receiving the Corporate Action orders and will make sure that everything is ready from the first execution day on 6 June and all through 1 July.