Luxembourg's investment management industry has a new buzzword, a new obsession, a new battlefield: MiFID II. The directive on markets in financial instruments will have a tremendous impact on the way we run our business. It will be a norm-buster. Everybody's been saying so.

But how will the norms be busted, exactly? And how will it affect the business models of Luxembourg management companies?

Please read on for the first article in a series spotlighting management companies and MiFID II, and check back soon for more. Today's topic: context and scope.

Looking back, looking ahead

MiFID II is a major directive that's been in the works since 2014. It updates the original MiFID, which was implemented in 2007 and aimed inter alia to enhance and harmonise customer protection across Europe for the provision of investment services. Originally foreseen for 2017, MiFID II has been delayed and will come into force in January 2018. And, it's big: if you want to read the original texts published at the European level you would be looking at 1,876 pages... just on levels 1 and 2.

By the end of June 2017, Luxembourg will have transposed the directive into national law. Currently, it is not known if government will introduce significant changes in doing so.

ESMA has also promised further guidance and clarification, which will be welcome, since there persists an element of uncertainty about what will be required and what will become market practice. However, the time to start positioning yourselves is right now.

Slippery slope to assumptions about scope

Since the start date of MiFID II is getting closer, I have been receiving more and more questions on the scope of the directive, especially for Luxembourg ManCos: is MiFID II applicable to management companies or not?

The answer is: it depends. ManCos are not in direct scope of MiFID II, true—but those management companies that offer discretionary portfolio management to their customers do need to pay attention, because this service is in scope.

The directive furthermore addresses items to the distributors of a ManCo's key product—its fund. I therefore expect that most Luxembourg management companies will indeed be affected by MiFID II, and will need to deal with its requirements.

The next steps

MiFID II topics like inducements, distribution networks, product governance requirements, and costs/charges all come with questions and anxieties in tow. Watch this space for further articles delving into each of these subjects, and more. I will maintain the perspective of a Luxembourg management company throughout.

I will also examine new distributed ledger (blockchain) solutions, which promise to squarely tackle the problem of increasing regulations on distribution. My colleague Said Fihri has already blogged about KPMG's own blockchain development and its applications around the asset management industry—but payments and MiFID II are next on the docket. As blockchain products mature, it will be particularly interesting to see how MiFID II struggles could be smoothly handled by digital ledger technology.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.