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The mighty Mifid

You may be pleased to know that the World Cup has not been delayed. Imagine if Fifa announced that due to countries disagreeing about the quality of the pitches, it had been decided that the World Cup would be pushed back to 2007. It would cause worldwide outrage.

In our own back garden, legal wrangling is threatening to further delay the EU markets in financial instruments directive. As it stands, implementation must take place by November 1, 2007 and the UK with the other member states must adopt the legislation, rules and guidance by January 31, 2007.

These changes will have a far-reaching effect on distribution and manufacturers alike. Mifid aims to introduce cross-border trading across Europe.

FSA managing director for wholesale business Hector Sants is encouraging the industry not to sit and wait but to start preparing. This compares to Mr Eriksson waiting for Wayne Rooney to get match-fit for the second round of the World Cup. Obviously, preparation and training can begin but it will not be until the last minute that we will know what the final line-up is for Mifid.

During the summer, we have at least four FSA “blockbuster consultation consultative papers about Mifid to look forward to. The industry must help the regulator write the FSA the blockbuster Mifid rules.

If we don’t add support, we could end up with a set of FSA rules that require UK compliance to be far more onerous that that of other EU states, particularly those who choose to adopt Mifid as it is written, without an added second tier of rules.

Think about the size of a non-blockbuster consultative paper. At the time of writing, the most recent consultative CP06/10 was 718 pages in total. Can’t wait to get my sun lounger out on a sunny day and read through what may be over a thousand FSA Mifid CP pages. Not!

Mifid can either be regulation or a directive and the lawyers are arguing about what legal form Mifid should take. Regulation would give more authority to the European regulator rather than the FSA while the FSA would have greater flexibility to enforce changes if Mifid is issued as a directive.

If Mifid is introduced as regulation, there will be detailed rules written. It will be confusing for compliance teams to familiarise themselves with the principle-based treating customers fairly initiative whilst at the same time following the detailed rules of Mifid.

As for execution-only or direct-offer sales, it looks like Mifid will kill this marketing methodology of financial services as within Mifid it suggests product purchases can only be considered “execution-only” if the client approaches the firm “on their own initiative”. We need to know exactly what this means. It will be difficult if we do not get a solid definition. This would echo the problem defining misselling, as we have never been given a tight definition. What needs to be remembered is that in many European countries it is unheard of for investors to approach a product provider without being sold to.

Imagine if you were lucky to run a business such as Hargreaves Lansdown where the directors have built a successful business on the back of execution-only sales. It could mean that if someone wants to put through an application because they know that a particular product is right for them, the intermediary firm will have to assess the suitability of the investment for the client and record all details as if it were a fully advised sale.

The EU is expected to put out a separate paper on what marketing means under Mifid. Marketing people of the world should watch out as things may be about to change for them. It is time for marketing professionals to help shape the future and not leave FSA responses to compliance departments.


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