The Department of Finance confirmed, in the recent Feedback Statement on its MiFID II Consultation, that the Minister for Finance would exercise the discretion in Article 3(1) of MiFID II to exempt, from the scope of MiFID II, firms who meet the conditions in Article 3(1)(a), (b) and (c) (i.e. the ‘RTO/advice exemption’).
While the exercise of this discretion means that certain firms can continue to be authorised under the Investment Intermediaries Act 1995 rather than by the European Union (Markets in Financial Instruments) Regulations 2017, to benefit from the exemption those firms must be subject to requirements which are “at least analogous” to certain requirements of MiFID II.
In looking at those requirements, the Department of Finance identified certain gaps between the MiFID II package and Irish law. This has resulted in the publication by the Central Bank of an Addendum to the Consumer Protection Code 2012, which will take effect on 3 January 2018 (the same day that MiFID II will come into force).
The Addendum inserts a new Chapter 14 into the Consumer Protection Code. Firms that benefit from the above exemption will have to comply with this new Chapter 14 from 3 January 2018. Chapter 14 imposes obligations on those firms across the following areas:
» Telephone conversations: ensuring that telephone conversations leading to or intending to lead to a transaction are recorded or, alternatively, following up those telephone conversations with a written communication.
» Conflicts of interest: disclosing conflicts of interest to consumers, and carrying out periodic reviews of conflicts of interest policies.
» Target market: obtaining specified information from product producers and understanding the characteristics and identified target market of each product they are selling.
» Independent advice:
- not accepting or retaining fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to a client (with the exception of minor non-monetary inducements);
- explaining whether and why investment advice qualifies as independent or nonindependent and clarifying what it means when the advice is offered on both an independent and nonindependent basis;
- providing particular information to clients when providing investment advice and, in particular, when providing that advice on an independent basis; and
- where the firm is a natural person, refraining from providing both independent and non-independent advice.
» Execution of orders: providing certain information to clients in relation to the execution of orders (other than for portfolio management).
» Information on costs and associated charges: providing information in good time to clients and potential clients in relation to costs and related charges, aggregating costs and charges in disclosures to clients, and making reasonable estimates of costs (where actual costs are not available) in disclosures to clients.
» Suitability assessments: providing periodic suitability assessments.
» Remuneration: ensuring that staff performance is not remunerated or assessed in a way that conflicts with the duty of staff to act in the best interests of the relevant firm’s clients.
Minor changes have also been made to Chapters 4 (Provision of Information) and 9 (Advertising) of the Consumer Protection Code to take account of MiFID II more generally.
Given the very short period until MiFID II is implemented and the Addendum goes live, firms benefiting from the RTO/advice exemption (having first identified that they fall within the scope of the exemption) will have to work quickly to assess the implications for their business both in terms of business model and business operations (including systems and policy changes).
For further information in relation to MiFID II, read our recent briefings: