The European Commission’s proposal to ban commission for IFAs should be extended to all advisers to ensure a level playing field, according to a report from the House of Lords European scrutiny committee.
In October, the EC’s proposals for the Markets in Financial Instruments Directive II proposed banning commission for advisers operating on an independent basis. In March, the European parliament suggested amending this so all advisers simply have to disclose any commission. The EP was set to confirm this as its position in an Economic and monetary affairs committee vote this morning but it was delayed due to disagreements on the EP’s position on other proposals within the Commission’s original proposal.
The report says the Commission is right to look at boosting consumer protection but that the proposal to ban independent advisers taking commission is flawed. It says instead a ban on commission for all advisers along the lines of the retail distribution review would be preferable..
It says: “Restricting the ban on inducements to independent advisers will be unworkable, since advisers will simply take steps to avoid being called independent. A more consistent approach to consumer advice is needed to ensure consumers are adequately protected. One model for this is the approach adopted by the FSA in its retail distribution review, which deals with the status and remuneration of advisers generally and prohibits all payments in the form of commission.”
It also criticises the EC’s “deeply flawed” proposal to require non-EU firms wanting to offer most investment services within the EU to be based in a country with regulation that is equivalent to Mifid II, signed off by the Commission or the European Securities and Markets Authority. It says consideration should be given to the European parliament’s proposed amendment to introduce a transitional regime for existing firms while the Commission looks again at the need for equivalence
It says: “There is a risk that, if introduced, such provisions could lock third country firms out of the EU markets, which taking into account the risk of regulatory retaliation, would have an extremely damaging effect on European financial markets, and in particular the City of London. Given that global financial markets are independent of geography, we believe this to be wholly impractical.”