Insight & News

The missing bits in the MiFID II – costs/charges transparency definitions; your questions answered

targit GmbH01.11.2017

Although the framework regarding the ex-ante and ex-post cost transparency seems to be well defined by ESMA in MiFID II, a number of questions remain unanswered and leave the directive open for misinterpretation, confusion and potential conflicts between customers and their financial institutions or brokers.

In this article we try to provide the ingredients to help you understand the transparency obligation and its impact on both consumers and your business.

Do ex-ante reports have the same scope as ex-post reports?

The main driver behind the regulation is to provide the consumer with a comprehensive overview of the costs to expect before buying a product or service. The ex-post component poses challenges, because it may show discrepancies between the forecasted and actual costs, disclosing much about the inner workings of the institutions, whilst potentially inviting debate and conflict over  “who will pay what”.


The ex-ante transparency applies to:

  • ‘regulated market’ (RM) or
  • ‘multilateral trading facility’ (MTF) or
  • ‘organised trading facilities’ (OTF) or
  • ‘systematic internaliser´ (SI)
  • ‘over the counter’ (OTC)

Which costs are covered by these reports?

The directive is not entirely clear on which costs the reports should cover. Quite a few questions remain unanswered… again. What about variable costs over time (ex-ante)? What is the impact of ‘return on costs’? Does the broker have to make public what their margin is?

Four main costs/charges categories have to be disclosed (on ex-ante as well as ex-post reports).

  1. One-off charges

These costs and charges are paid to the investment firm at the beginning (entry) or at the end (exit) of the provided investment service(s) (Deposit fees, Termination fees).


  1. On-going charges

These on-going costs and charges are paid to investment firms for their services provided to the client. (Management fees, Advisory fees, Custodian fees).

These costs/charges are recurring.

For ex-ante reports they can only be provided with assumption and reserve with a standard duration of conservation.


  1. All costs related to transactions

These costs and charges are related to transactions performed by the investment firm or other parties (Broker commissions, entry- and exit charges paid to the fund manager, platform fees, mark ups (embedded in the transaction price), stamp duty, transactions tax and foreign exchange costs).


  1. Incidental costs

These cost are mainly performance fees.

Return on costs have to be provided for both reports on standard duration.

Although cost/charge are minutely detailed, the broker’s margin will not appear, only broker commissions will be disclosed.

Is the [ex-post disclosure cost/charge report] tomorrow’s [ex-ante disclosure cost/charge report]?

Surely not, because ex-ante disclosure cost/charge report contains:

  • elements which are predictable,
  • elements not predictable which have to be estimated (for example Exit and Re-sale costs),

where ex-post disclosure cost/charge report contains only elements which are real and are going to be charged.  

How can one compare ex-ante with ex-post and what happens if the ex-ante and ex-post costs/charge reports are radically different? What happens to the bank if they get it wrong all the time?

As mentioned earlier, these two reports are different and contain different costs/charges.

Discrepancies can be substantial but have to be explainable. To prepare the customer for potential  discrepancies:

  • the method to estimate costs/charges has to be improvedpermanently and consistently by using incurred elements regarding costs/charges and billing data,
  • estimated costs/charges have to be highlighted in the ex-ante report.

Even if no penalties are planned from ESMA to sanction existing differences between ex-ante and ex-post report, it is important to provide liable elements because the credibility of the finance institution is in play.

Will it become a marketing tool (low cost vs. high service) and will this be used to compete?

The obligation to provide an ex-ante disclosure cost/charge report in a timely fashion will probably increase competition between institutions as long as customers have the option to obtain a number of ex-ante reports and are able to compare the reports before placing the order.

That being said, a detailed report alone will probably not provide a competitive advantage; customers have a tendency to look at the bottom line only and just compare total cost, which will most certainly steer their decision.

What are the implementation issues in software providing ex-ante cost overviews?

Implementation of the new reports requires software and tools which

  • are able to connect to different trade repositories,
  • are able to read and use different data structures,
  • are efficient,
  • are easy configurable and adaptable


and where an implementation can be done quickly. Time is running out and the implementation dead-line has been set for 3rd January 2018!