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Top European regulator backs EU-wide commission ban

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European Securities and Markets Authority chairman Steven Maijoor has called on the EU to implement a total ban on commission under Mifid II.

Speaking at the British Bankers’ Association annual conference in London today, Maijoor said only a commission ban will prevent future misselling scandals.

ESMA is reponsible for ensuring financial stability and enhancing investor protection across the EU.

A Europe-wide commission ban is currently being debated in trialogue discussions over MIfid II between the European Commission, European Parliament and Council of Ministers.

At the Conservative party conference in Birmingham last week MEP Kay Swinburne blamed Labour for the failure to get agreement on a Europe-wide ban.

Maijoor said: “We do support the ban on inducements in certain situations as proposed by the European Commission in Mifid II. At a minimum we have to ban inducements in discretionary portfolio management and when an adviser wants to use the independent label.

“Getting the incentives right for providing good advice to clients is crucial. Getting poor incentives can not be solved just by corrective measures, internal controls and external supervision as too often it fails to get the required outcome. I hope the EU will follow some member states, including the UK, and move to ban inducements.

“I understand it will take some adjustment both on the industry and consumer side by moving to a new business model. Advisers and intermediaries have raised concerns about how a ban on commission may hurt their competitive position.”

Maijoor said commissions and sales incentives are “different sides of the same coin”.

He said: “Banks can recommend products they have originated therefore there are no explicit inducements involved but there can still be conflicts of interest. When offering a range of products banks may prefer their in-house products or those in-house products that have a higher return. We should not only look at inducements but also the remuneration of advisers and sales staff in financial institutions. Commission and remuneration are different sides of the same coin.”

Last month, the FSA launched a crackdown on banks’ sales practice after a year-long investigation into incentives. It is currently investigating Lloyds Banking Group over poor practices.

This month, both Barclays and Co-operative Bank introduced new incentive systems based on customer service rather than sales targets.

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Scott Taylor-Barr 17th October 2012 at 12:06 pm

    Would it not be easier just to cap the maximum amount of commission/remuneration/incentive any product class can pay-out?

    If the level of income is no longer a competitive point of difference then the products key benefits will be sold – or is that just too simple a solution?

  2. Putting a cap on commission would be far too easy. It would mean the FSA would not have any work to do and of course we cant have that can we, they have to justify their existence in getting rid of financial advice in thee UK. God forbid that financial advice to the masses was still allowed especially in the economic climate we live in!!!!

  3. @Anon 12.06. This would be too simple. But bear in mind the industry called for this about 20 years ago or more but those who “knew better” said no as this would stifle competition and under the then current scheme commissions would come down as market forces came in to play. As usual this in the know were completely worng and as a result commissions went up and up and up. If Mr Majoor thinks for one second that banning commissions will stop miss-selling hae has no right being in the position he is in. All that will happen is that the rogues will simply charge an arm and a leg for as long as they can get away with it and clients will not have a leg to stand on as they will have signe the client agreements (probably at the same time as conducting the business) and then these will simply be pre-dated. It doesnt take rocket science to work this out. It is how the banks and other rogues got away with it in the passed and it WILL continue. We are stuck with ludicrous system from jan 1st but dont worry it wont be long before RDR 2 has to come along and try to replace the clusterf*** that will be the RDR. FCA will deny all responsibility of it as it was all done and dusted before they came along and those who came up with it will be long gone and in jobs elsewhere. Its they way of the world I am afraid.

  4. It totally shocks me that the top regulator in Europe does not understand the situation in the Industry he is supposed to regulate.
    Commission will still be paid but it will be called Adviser Fee.
    I cannot be the only person in the world that understands this, can I ?

  5. This “top european regulator” from Holland has numerous qualifiations in Business Economics, Financial Accounting, and Auditing but none in Financial Advice.
    Do any of the people at the top really understand what they are actually regulating?

  6. It’s interesting to see that many of the people who stated last week that individuals trading in Europe would flood the UK with advice services based around commission. Well for one I don’t think this will happen in the first place and it looks like Europe is going to ban commission anyway.

    Commission is not only a problem in investment and pensions is also a major problem in large general insurance markets like shipping an aeroplane insurance. If anybody thinks that the regulator will stop at Investments and Pensions think again as I know a few people working in the reinsurance industry and there are serious talks about banning commission in this area as well.

    The reality is there is very little difference in commission and adviser fee it is just the way that you explain the proposition to the client. I’ve been operating the system from number of years and have yet to see any negative feedback from clients.

    I sometimes think that we create monsters in our own heads instead of thinking about a logical approach to a business proposition.

  7. Will a ban on commission signal the end to price comparison websites? I hope so!!!

  8. RDR + FSA + EU = F.U.B.A.R!!!!!!!

  9. @ Paul
    We will need to be able to demonstrate the following:

    set your own charging structure, from this I read not one based on the existing structure.

    have a charging structure based on the level of service we provide. from this I read we need to be able to quantify the charge levied for the service provided.

  10. Ban commission ! Whatever next ?
    Oh I know, why not ban financial advisers from giving advice.

    Isn’t that what the whole RDR is about, getting rid of the Independent Financial Adviser or at least ensuring only the well off can have access to financial advice, the rest, go to comparison sites and sort it out for yourself.

    That way, we could get rid of FOS and FSCS once all IFAs have gone out of business.

    Sounds like a plan !

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