The FSA has published a speech by Dan Waters (Director of Retail Policy & Asset Management Sector Leader, FSA) entitled MiFID - Threats and opportunities. In his speech Mr Waters discusses some of the threats and opportunities presented by the Markets in Financial Instruments Directive (MiFID). He also discusses other elements of the wider EU agenda that are relevant to financial advisers, insurance brokers and the markets. He also addresses how the EU’s future agenda sits with the FSA’s agenda including the Retail Distribution Review and the new Insurance Conduct of Business sourcebook.
In his speech Mr Waters states that he did not really see any significant threats from MiFID. In his view the biggest threat was that MiFID would force the FSA to remove some specific retail investor protections. However, the FSA was pleased by the stance taken by the European Commission when the UK submitted its MiFID Article 4 notifications which allowed the FSA to retain certain additional requirements. In relation to opportunities Mr Waters mentions that investment advice has become authorisable in every Member State and as a result is passportable.
Mr Waters then briefly discusses the main changes arising from MiFID including client categorisation, best execution, appropriateness and suitability and inducements. In relation to best execution Mr Waters states that financial advisers - whether MiFID firms or not - who receive orders from clients involving MiFID instruments and transmit those orders to others for execution will still be covered by the revised best execution regime in COBS. He also states that they will need to have a policy in place to ensure that they achieve the best possible result for their client orders, and they will need to check whether the outcome is actually being delievered. The changes applied to MiFID advisers from 1 November 2007 but will also apply to non MiFID advisers from 1 May 2008 (1 November 2008 in respect of orders for units in collective investment schemes, subject to the outcome of FSA consultation which is expected in Q2 2008). In relation to inducements Mr Waters acknowledges that there are differences in the inducement requirements that apply to MiFID and non-MiFID business, but that the central outcome is to prohibit firms from paying or receiving benefits that would conflict with their duties to act in the best interests of their customers.
Mr Waters then discusses the issue as to whether financial advisers with clients abroad can be non-MiFID firms or have to opt-in to the Directive. He then draws attention to the Factsheet that the FSA has published which aims to set out the issues and questions firms need to consider and what action firms may need to take.
In relation to supervising priorities Mr Waters mentions the FSA’s Business Plan commitment that in Q1 2008 it would begin a risk-based review of how firms had implemented MiFID. The priority issues for most firms would be disclosure, inducements, suitability, appropriateness, financial promotions and best execution.
The final part of Mr Waters’ speech covers the EU agenda post MiFID and how it sits with the UK domestic agenda, particularly the UK Retail Distribution Review. In relation to EU retail distribution work the Commission wants to examine whether the current framework of EU law and regulation promotes a coherent approach to product transparency and distribution requirements for competing or substitutable retail investment products or whether differences pose risks to investor protection and market integration. According to Mr Waters the Commission is currently in listening mode and will develop its work in 2008. As for the UK Retail Distribution Review the FSA intends to publish an Interim Report in April 2008 to set out how it intends to do more work ahead of publishing full feedback in October 2008.
View FSA speech - MiFID - Threats and opportunities, 9 January 2007