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New Euro rules could hit non-advised sales


Firms looking at moving into the direct to consumer market have been warned of the significant impact of European rules which would require them to carry out an appropriateness test on non-advised sales.

Ongoing negotiations by the European Parliament and the Council of the European Union are aiming to strengthen consumer protection for retail investment products via a legislative package of reforms.

One of these reforms is the Insurance Mediation Directive 2, which mainly covers insurance products, but also insurance investment-linked products such as bonds and with-profits. Based on the outcome of ongoing discussions and the final version of the rules, IMD 2 could also be extended to pensions and annuities.

Within IMD 2, article 25 states that for non-advised sales, information must be obtained about a customer’s knowledge and experience to determine the product’s appropriateness. The customer must be warned where a product is not considered appropriate.

Pinsent Masons partner Bruno Geiringer says: “Firms that are now looking to sell direct have not quite woken up to the fact they may have to deal with an appropriateness test. This is a bit of a trojan horse and it is not being taken seriously.”

SJ Berwin financial markets partner Tim Dolan says: “The burden is quite high on making sure the product is appropriate, and ultimately the burden will be on firms to decide how they demonstrate they have sufficient information about the customer’s understanding of the product.”

Royal London recently announced it plans to launch a D2C proposition. Head of corporate affairs Gareth Evans says: “An appropriate test might be quite difficult to evidence. There is a lot to play for here and I hope common sense will prevail.”

Aviva and Standard Life, which have also signalled plans to sell direct, declined to comment.



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Matthew Rodhouse 11th July 2013 at 10:34 am

    COBS 10 already includes an appropriateness test based on MiFID 1. So surely this has no effect on UK based firms?

  2. How do you make an appropriate test without making a recommendation, surely this effectively bans execution only or non-advice sales?

  3. A further reminder to those who still believe we are regulated by the FCA.

    No, we aren’t. They are just a local council whose job it is to implement laws and regulations set by the EU.

    What the FCA think is to a large extent irrelevent. What Europe thinks will be what affects us all.

  4. MiFID 1 / COBS 10 – Nov 2007 – introduced the appropriateness test for execution-only transactions by retail customers in ‘complex financial instruments’ i.e. Warrants / Derivatives or those which embed a derivative. If a firm makes this type of financial instrument available to retail custokmmers, for example, via a securities trading platform – then it must fulfil the appropriateness test. Dig out an old copy of MiFID Connect!

  5. Finally, some good coming out of europe.

    Anything that makes it more difficult for companies to provide execution only products has got to be good for IFA’s.

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