"The scope of this regulation is broad, and covers not only the internal operations of a firm but also aspects of the advice process and interaction with third parties."
Unfortunately, the compliance team can’t help you with the first two on that list, but we might be able to help you demystify the language of European financial services regulation!
Whether it’s on your list of things to do in 2018 or not, MiFID II is heading our way and will be in place on January 3rd 2018. The scope of this regulation is broad, and covers not only the internal operations of a firm but also aspects of the advice process and interaction with third parties. Some of the hottest topics covered by this review are;
• Assessing suitability – following a thematic review last year, disclosure is firmly in the regulator’s sights, with a particular focus on the clarity of adviser charging structures and timescales in suitability reports. Methods of charging, which look set to come under the most scrutiny, include ongoing services agreements, open ended initial charges, hourly rates and tiered charging structures. We’re already aware of a big change which is that suitability reports will now need to be issued whether or not a transaction has been made; advising a client to take no action will now be classed as giving advice and the relevant information issued to clients.
• Structured deposits – in order to maintain independent status, structured deposits will need to be considered during the advice process, which means advisers who don’t currently hold the relevant permissions for this market will need to apply to the FCA for a variation. If your application is made before January 3rd next year there will be no cost for the change – if the application is made after that date, there will be a charge.
• Definition of independence – it sometimes feels unlikely that even Thomas Jefferson and his ‘Committee of Five’ spent as long debating the meaning of independence back in 1776 than the financial services sector has over the past few years! However, MIFID II will be delivering yet another definition, including one which may be preferable to many of you who don’t feel comfortable operating on the very niche edges of the investment spectrum. Instead of the current requirement to deliver a ‘comprehensive analysis’ of the market as part of your advice process, you will instead need to deliver a review which is ‘sufficiently diverse’. Although this sounds as though it might mean a relaxation of the need to consider the entirety of the market for each client, we still need to discover how it will relate to actual black and white guidance. In addition, there will be a number of investments classed as retail investments under MIFID II which are not currently, such as shares, bonds, derivatives and, as mentioned above, structured products. Although we’re yet to see any definition of independence have a measurable impact on consumer perception, at least this change may have a positive outcome for the streamlining of the advice process of independent advisers.
