The European Commission has proposed a one year delay in implementation of the European Union (EU)’s Markets in Financial Instruments Directive II (MiFID II), which is designed to further harmonise the regulatory regime across member states. The legislation is now expected to come into force in all EU member states on January 3 2018.
This follows concerns that national regulators and participants in trading markets would both experience severe difficulties in completing their preparations for MiFID II by early 2017.
Jonathan Hill, the EU’s Commissioner for Financial Services, Financial Stability and Capital Markets Union said:
“Given the complexity of the technical challenges highlighted by ESMA, it makes sense to extend the deadline for MiFID II. We will therefore give people another year to prepare properly and make the necessary changes to their systems. Meanwhile, we are pressing ahead with the level II legislation to implement MiFID II and expect to announce those measures shortly.”
Prior to the announcement, Steven Maijoor, chairman of the EU’s European Securities and Markets Authority (ESMA), had suggested that a 12 month delay may not be sufficient, so it remains to be seen whether the new January 2018 deadline will be moved back in due course.
MiFID II will introduce a requirement to disclose all product and other charges to investors upfront; a different definition of independent financial advice; an increased emphasis on assessing clients’ capacity for loss before giving investment advice; and new rules on the receipt of inducements. Its implications for advisory firms could be far reaching, and could have an impact in areas such as:
• Resolution of conflicts of interest
• Complaints resolution
• Handling of client assets
• Inducements and payments to third parties
• Suitability of advice
• Provision of information to clients
Earlier suggestions that the legislation would require all financial advisory firms to tape face-to-face conversations with clients have now been dismissed. The UK regulator, the Financial Conduct Authority (FCA), has said that the MiFID II rules on recording of telephone conversations with clients are similar to its existing rules, although the Directive dictates that recordings are retained for as long as five years.
The head of the trade association the Association of Professional Financial Advisers, Chris Hannant has said that, in spite of the delay “the timetable is likely to still be challenging”, but the FCA has urged firms to “press ahead with their implementation work.”
The FCA’s December 2015 consultation paper focussed on the implications of MiFID II for investment banks, interdealer brokers, algorithmic and high-frequency traders, trading venues, data reporting service providers and investment managers. But all advisory firms must understand that the legislation will have an impact on their practices and procedures. The FCA will publish further consultation papers on the subject during 2016.
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