Unfortunately, ignorant bliss is not something that firms can continue to live under as the far reaching implica-tions of this directive become clearer .
It is worth bearing in mind that when reduced to the acronym Mifid, this directive rhymes with that sci-fi plant monster, the triffid, which wreaks havoc on the world and blinds million.
The essential problem with Mifid is that our financial services market is far and away more sophisticated and complex than any other member state. And, although, in theory, this directive was only intended to cover those IFAs that hold client money, its impact on the FSA’s conduct of business rules which affect all IFAs, has been significant.
This week, we have learnt that the FSA has failed to conv-ince the European Commission that key elements of their post-polarisation structure, designed to protect consumers, cannot be enforced as rules under Mifid.
The initial disclo-sure document and the menu goldplate the directive, which means they cannot be enforced as mandatory rules.
The FSA notified the EU Commission under Article 4 of its intention to keep the rules, at least until it found an acceptable substitution. But it has now conceded that these rules will not appear in its new rule book.
They are, however, saying that they are seeking alternatives to meet the objectives of the documents. “Hooray”, you may be thinking. “I’m free to draft my disclosure documents as I wish.”
While it is true that both these documents in their current format are complex and need to be reviewed, we need to be reminded about why it was necessary to introduce these documents in the first place.
Once upon a time, there were only two categories of operator: indepen-dent or single tied. Depolarisation made the financial services world even more complicated for the consumer, with additional categories of advisers and salespeople.
The FSA saw greater transparency of status and charges as paramount in the new world and the industry ‘trade-off’ for being able to operate more flexible business models. And in order to meet the Menu requirements, bancassurers were required to disclose their charges in a comparable format, too. The regulator had succeeded in introducing a level playing field on disclosing the type of service and associated costs across the financial services industry.
But now, all that is under threat.
It is possible that many IFAs might opt for a ‘safe harbour’ and continue to use these documents in their current format. But can the same be said of other business models? Banks, you may remember, were vehemently against having to disclose charges in a commission equivalent format.
They said it would be too complicated and too difficult to implement. But the FSA persisted and required banks to disclose charges in a way which was comparable.
The scrapping of the menu and IDD was probably inevitable due to their complexity but until FSA provides guidance on how firms deliver clear, fair and comparable disclosure, consumers have even less chance of understanding who they are dealing with and the ability to compare services and charges.
Chris Cummings is the director-general of Aifa.