Defaqto Regulation Update: It won’t be long before Mifid II begins to affect the day-to-day lives of financial advisers and how they interact with their clients.
Although there are two parts to it, Mifid II and Mifir, for simplicity’s sake, I will be writing about the Markets in Financial Instruments Directive II, which comes into being on 3 January 2017.
Why we’re facing more regulation and legislation
With 2008 still in the forefront of the minds of EU legislators, their overall motivation, other than the perception of increasing the regulatory burden of UK advisers, is to regain the trust consumers have in the financial services industry, by making it more transparent, more focused on customers and therefore hopefully safer to operate within the single market.
A market can only be efficient if information is freely available to all participants. So, this faces both institutionally orientated firms and those dealing with retail customers, and affects market structure, governance and communications.
As we’ve seen with the FCA, the accountability, conduct and behaviour of senior management of firms and the way they govern, will be the target of this legislation.
The word ‘culture’ has frequently been used.
The failure of corporate governance is still seen as a major cause of the recent financial crisis, by regulators and law makers around the world.
Therefore prevention must start from the top down with the culture of a firm providing the bedrock of customer protection.
Why there’s a need for an update on Mifid I
Mifid II is seen as improving Mifid I and reacting to the brave new normal world we live and operate in. In short, we will have to behave correctly and provide information to our customers that they understand.
The FCA has already published its discussion paper and continues to have ongoing dialogue with market participants.
The following timeline has been provided by the FCA:
• summer 2015 – Adoption and formal approval process of EU legislation on Mifid II;
• October 2015 – FCA Mifid II conference;
• December 2015 – Consolation on implementation of requirements;
• early 2016 – Measures finalised and published;
• June/July 2016 – FCA policy statement; and
• 3 January 2017 – Mifid II comes into effect.
So what do we know about the impact areas?
The directive intrudes on advisers and their businesses on so many levels. Although, RDR has addressed some of the issues, as does PRIIPS and Ucits legislation, on face value, the following are areas from the directive, which an adviser might feel affect them directly or indirectly:
• client categorisation;
• information to clients;
• conflicts of interest;
• client order handling and complaints handling;
• clear, fair and not misleading communications;
• client assets;
• inducements and third-party-payments ban;
• suitability and appropriateness;
• execution-only, best execution and investment advice;
• record-keeping and reporting to clients;
• remuneration and information to clients; and
