MiFID II – the road ahead

26 January 2015

Frank Potaczek – Senior Vice President (Funds and DFM)

We should find out from ESMA, the EU wide financial services regulator, whether we will see a delay in the implementation of MiFID II in the next few weeks. We’re also waiting for confirmation of the Delegated Acts which is now expected this month instead of last.

In the meantime it’s worth looking at the overview we were given by the FCA during their conference in October last year, where they outlined the road ahead.

The first thing to highlight is the overarching message that adherence to the regulation should be about the spirit and well as the letter of the law – principles and rule based regulation some might argue.

Our regulator said that key to the legislation for advisers is the framework for investor protection which will ensure that investment firms act in the best interest of clients, first and foremost, rather than their own.

For advisers, this means corporate governance, product governance and complaints handling, among other things.

Corporate governance is about making sure that the advisory firm is organised in such a way that senior management has the ability to provide effect oversight to ensure that clients are treated properly by their advisers. This may mean setting up an expert investment committee with possibly some external members to check investment solutions are appropriate for the firm’s client segments.

With investment manufacturers having to improve their product design processes such as taking into account the type of client the solution is being made for plus analysing what happens in various scenarios and stresses, so too does the adviser now need to know what clients and what the solution can and cannot do – and in what scenarios the solution may no longer work or be unsuitable.

Better, more complete and above all clearer information must be provided to clients about investments, in a way that they can understand, before they buy them. The intention is that a client should not complain about an investment by saying they didn’t understand what they bought or that it wasn’t what they thought it was.

The message from the FCA is that advisers should be aware of what area of MiFID II applies by undergoing an impact analysis for their firms and be in the early stages of planning for MiFID II.

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