There has been much discussion about the implications of MiFID II (Markets in Financial Instruments Directive) following the long-awaited agreement reached among EU regulators at the end of January this year. The directive is being introduced with the aim of establishing a more transparent system and efficient marketplace.
One of the key impacts on distribution practices is the investor protection element which will see a ban on commissions introduced for the first time across Europe. Unlike the Retail Distribution Review (RDR) in the UK, MiFID II will not ban the payment of commission completely, only for independent financial advisors. It still allows tied agents providing restricted advice to receive commission.
Product providers had been waiting for over a year for final rules, with the absence of any consistent rules spanning Europe seen by some as making cross-border business more complicated and costly. Whilst the rules on commission are minimum measures, the ability for EU members to introduce their own rules will mean inconsistencies remain.
It will be interesting to see whether member states follow the tougher positions taken by the UK and The Netherlands in banning all commission payments from providers to distributors. Sweden and Germany are other countries considering a change to current practices governing commission payments.
In addition to a ban on commission, fund managers will have to make all hidden charges related to funds clear to investors for the first time, although the directive does not apply to any form of collective investment fund such as unit trusts and UCITS. In the UK, the IMA (the trade association for the investment management industry) has already developed proposals for fund managers to provide investors with a pounds and pence figure to show the total direct costs of a single unit within a fund on an annual basis.
Introduction of the new rules is expected to begin during 2016. The European Securities and Markets Authority (ESMA) will perform a prominent ongoing operational role in assisting the industry with implementing the measures. The first discussion paper in preparation for technical standards is due shortly.