The publication yesterday by the European Commission of the latest draft of the Markets in Financial Instruments Directive II (Mifid II) has only served to increase the confusion around the distribution of investment products in the UK.
It appears that the Commission is determined to ban commission payments for investment products but only for independent advisers and not for restricted advisers, while the UK’s RDR regulations, which come into force at the start of 2013, will ban commission for restricted advisers as well as independent advisers.
This leads to an interesting scenario, which was never really considered when the single market was envisioned. For a single market, the concept of market-wide regulation makes perfect sense. Having the same rules across the Union would prevent individual countries from giving their financial services industry an unfair advantage by having lower levels of regulation or even none at all. It would also provide a consistent approach for consumers, enabling them to deal with confidence with distributors from other countries.
What was never envisioned at the time was that some member countries would actually increase the level of regulation on their own industry, thereby creating an uneven playing field by giving their own distributors a competitive handicap.
However, this is the position that the UK is putting itself in by implementing more stringent regulations than are proposed at European level. All any company, either from an other member state or a UK one which relocates and ‘passports’ into the UK’ needs to do to stay receiving commission is to become a restricted advisor according to EU rules and they can sell into the UK under the rules of the country where they are situated.
Ironically, on the same day as the Commission announced the Mifid rules, the Federation of European IFAs (Feifa) announced that they were receiving an increasing number of enquiries about passporting from UK IFA firms seeking to domicile outside the UK. The release of the Mifid II draft is surely going to increase the numbers of those who are considering taking this way out.
If we are going to have a single market in investment products across the entire European Union, and most of us agree that such a market is desirable, then surely it makes sense to have a single set of regulations applying to that market.
The FSA’s strategy of going further and faster than the Commission in the regulatory approach is not doing the UK’s financial services sector any favours and could end up damaging it by increasing the number of IFA firms which relocate abroad and by encouraging firms in other member states to increase their UK operations.
When the FCA takes over, it should take note of this danger and perhaps try to work closer with our European colleagues so that the new regulations they wish to implement are adopted by the commission and applied EU-wide rather than doing solo runs which could ultimately damage our industry.