Regulation overload: Are advisers ready for the Mifid II mountain?

With just over three months left until the implementation of Mifid II, experts are cautiously optimistic that advisers will be ready for the incoming European regulation.

However, concerns remain that there is a lack of clarity on several important rules. A survey this month by discretionary fund manager Smith & Williamson found 73 per cent of advisers did not feel there was enough clarity on Mifid II to adequately prepare their business for the new rules that will come into force on 3 January.

Some commentators say the requirement around costs disclosure is unclear and that the FCA has missed an opportunity to make changes to illustrations.

Advisers are also being urged to check their agency agreements with DFMs, which could lead to liability issues under a Mifid II requirement to notify clients when the value of a discretionary portfolio drops by 10 per cent.

Last week, Money Marketing reported on the need for advisers to make sure those clients that need a legal entity identifier to make certain trades have got one before the regulation is introduced.

With the implementation date closing in, we get an update on which parts of Mifid II still concern advisers and hear from compliance experts about where future liabilities could emerge.

Coping with calls and conflicts

The FCA has published two Mifid II policy statements this year – one in March, which mostly concerned markets and organisational requirements, and a final statement in July, which included rules around conduct, research, inducements and client assets.

In the first policy statement, the FCA pulled back on the proposed requirement for so-called Article Three firms – which can include advisers – to “tape” phone calls where they are executing an order or dealing on an account and said they could make an “analogous” written note of the call instead.

Money Marketing has heard many anecdotal reports that the number of firms asking about getting call recording technology in their business has increased regardless.

The relaxing of the taping requirement was welcomed by the market but TCC Group technical director Phil Deeks warns the demand for written notes will still be onerous. Advisers will still have to make a note of the date and time of the meeting, the location of the meeting, who is present, who initiated the meeting, as well as information about price, volume and when an order will be executed.

Deeks explains: “Some of the bigger firms are recognising that not only does [recording] help them with Mifid II, but is good for suitability, so you don’t get a case of he-said-she-said five years down the road; everyone knows exactly what was said.”

Page Russell director Tim Page says the alternative paper-based recording option is not available to his business because it is a Capital Adequacy Directive exempt firm. That means the firm opted into Mifid I to deal with European clients.

However, Page says there is a silver lining to this. He says: “That has encouraged us to [introduce] a call recording system that will link up with our [customer relationship management] system. Another big worry was how much it will cost to store all of the calls but it doesn’t seem to be too bad.”

A Money Marketing columnist defends call recording

Overall, Page says his firm is on track with its preparation for Mifid II; although late policy statements have not helped with readiness.

Nick-McBreen-700.jpgAdviser view
Nick McBreen, adviser, Worldwide Financial Planning

There is still huge uncertainty out there in terms of drilling it down to, on a day-to-day basis, how Mifid II will impact investment advisers and what they have to provide clients with and preparedness on things like suitability and call recording. The big thing advisers need to be thinking of is the preparedness of processes for doing business. It does not change advice but it changes the paper trail and the record-keeping.

Deeks says some firms are also making changes as a result of Mifid II rules on conflicts of interest. Under Mifid II advisers need to take an extra step when they cannot prevent or manage a conflict of interest arising. In that case, they need to make an enhanced disclosure explaining that the firm’s arrangements have not been able to protect the client’s interests from potential conflicts.

Deeks says: “Some of the firms are waking up to the fact there is a higher bar now with conflicts of interest rather than just the disclosure point. Some of the firms we are working with are doing a more detailed review of their business model and then are seeing if they can identify where they have more inherent risks.”

Recommended

EU Flags European Union 480

EU regulator publishes post-Brexit relocation guidance for investment firms

The European Securities and Markets Authority has warned EU regulators  to raise awareness of outsourcing arrangements with UK providers once it withdraws from the EU as it publishes Brexit relocation guidance for investment management, investment firms and trading venues. Esma says firms should avoid becoming “letter-box” entities – those who take advantages of differences in regulation between countries by […]

9

Divided and conquering: Is regulators’ thinking joined-up?

With an increasingly complex pensions and investment landscape, it can be tough to know exactly who is responsible for what when it comes to regulation. The FCA’s remit in particular is widening, as it attempts to work through its own Brexit strategy, but also take on responsibility for promoting competition, overseeing consumer credit, and shortly, […]

3

FCA data reveals major gender gap in authorised firms

FCA data paints a bleaker picture for gender diversity in financial services than recent studies suggest, as investment firms are urged to commit to a five-year plan to improve equality within their businesses. Speaking at an event for The Diversity Project, an initiative launched by former Newton Investment Management chief Helena Morrissey a year ago […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. At least one DFM requires that we (not the client) have to have an LEI. The consensus was that firms do not need and LEI but this is NOT the case. We are also responsible for distributing MiFID II documentation and therefore what else are we liable for. It is very, very unclear and different DFMs appear to have a different policy or approach. If some DFMs require us to have an LEI then we will simply not do business with them because of the additional cost which would be directly passed on to the client.

    • Hi Sam, we run a DFM and have sight of FCA confirmation in which they confirm where the adviser is agent they will require an LEI as they are a legal entity. If your agreement with the DFM does not confirm you as agent I believe an LEI will not be required (unless the end client is a Trust for example). The key is that if the adviser is agent they are treated as the client(it’s in the COBs rulebook too).

  2. Ah ! if you cannot take regulation and Mifid 11 to the mountain take the mountain of paperwork of Miffid11 to the client.

  3. MiFid 11 would not be complicated or time consuming of the regulation was communicated in simple language, not jargon and legal terminology.
    It does make me wonder, advisers are told to make it clear, simple, so the client can understand. It takes an hour to read any regulatory communication to just understand what is actually required. Often even after researching many sources, its still not clear.
    Half the time there are conflicting statements and as for Jargon, its like reading the script Good Morning Vietnam. Its full of abbreviations.
    Does this make sense, would the VIP, be commenting with the VC, visiting the DMZ, as there are no PC’s, the VIP might hear on the QT, that the MC made a FOBAR, so the VIP would best LO.
    Anyone else feel this is our world, that everything is made far more complicated then it needs to be.

Leave a comment