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Euro threat to execution-only

The European Commission is looking to tighten up Mifid rules on execution-only services, with one option being to ban execution-only altogether.

Mifid rules state that execution-only services can only trade “non-complex financial instruments” but a recent consultation paper from the EC reviewing Mifid rules says there is uncertainty over what constitutes a non-complex product.

It has put forward two alternative proposals. The first is to tighten up the definition of non-complex products. Possible amendments include specifying which shares and bonds would be considered non-complex products and preventing execution-only services where investors are taking out credit or a loan to finance the transaction.

Under the current framework, Ucits are always considered to be non-complex but the commission is considering changing the definition to take into account the complex portfolio management techniques adopted for some Ucits.

The second proposal would be to ban execution-only services altogether.

The EC says: “In support of this option, it may be argued that retail clients – who are essentially concerned by the provision of execution only – should always expect a higher standard of service from intermediaries, including online brokerage, which is the typical channel for this kind of service.”

Chelsea Financial Services managing director Darius McDermott says a ban of execution-only services would be “disastrous”. He points to different buying habits of European consumers compared with the UK.

He says: “Non-advised execution-only buying may be less established in Europe but it is an extremely well established industry in the UK with roughly a quarter of all units bought in a non-advised capacity. If the EU were to outlaw execution-only entirely, it would be hugely detrimental to the UK long-term savings industry. People have been buying in a non-advised capacity for around 30 years. I would expect there to be substantial resistance to the banning of execution-only brokers.”

Investment Management Association regulation adviser Susan Wright says: “A few of the member states would argue that if you want to buy an investment product you go to an adviser but the UK comes from a different direction. We are watching this development with interest.”

Evolve Financial Planning director Jason Witcombe says: “I do not think banning execution-only is the right way to go. From a consumer’s perspective, if they do not want to take advice, why should they? It is ridiculous to say everyone should take advice and is overly draconian.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. I do not wish to see AIM market investing/trading curtailed. Execution only services work well. I am investing in mainly British wealth generating companies that are the Footsies of tomorrow. The risks are high but you are made to understand these risks before you invest. I hope the EU does not take retrograde steps to stifle much needed investment in the way I feel it will

  2. About time we got out of the E.U, what a complete waste of time and money.

  3. I object to0 ;osing the right to trade independently, my experience of trading through brokers has been unprofitable. Advice has been either bad or non existent. I refuse to pay for yet more bureaucrats.
    name withheld

  4. How can some burocrat in Europe dictate to me how I spend my own cash when they have never managed to ballance thier own accounts.

  5. I am a sensible, responsible grown up, and I am completely against this silly ruling, if i have the money, my money !!! I should be able to decide how I spend it , thank you. So as you will see I am against this Beurocratic EU Policy.

  6. Is this another example of the expansion of the financial services industry? As an adult, I am capable of making my own decisions but regulators put in legislation to enforce the use of middlemen who must be paid for an undesired service. Which company or group of companies is paying for the lobbying which has brought this forward?

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