Execution-only business is set to become more difficult under the latest regulatory proposals from E...
Execution-only business is set to become more difficult under the latest regulatory proposals from Europe.
The IMA believes planned revisions to the Investment Services Directive (ISD) would force retail investment firms to ask questions about customers' financial situations before undertaking any transaction, potentially hindering execution-only business.
The ISD revisions being put forward by the European Commission include the requirement that investment firms need to: 'obtain information enabling the investment firm to determine the investment services and financial instruments that are suitable for the client, including the client's knowledge and experience in the investment field, investment objectives and financial situation/capacity.'
The IMA believes it is crucial to draw a clear distinction between execution-only business and other types.
Unless this distinction is made the provision could limit investor choice and discourage savings and investment both in the UK and throughout Europe, according to Sheila Nicoll, deputy chief executive of the IMA.
She said: 'The European Commission must resist the temptation to over-regulate and stifle competition where the markets work well and where they provide choice. Retail investors need to be given the choice of dealing without advice and its attendant costs.'
The EU Commission's directive was first adopted in 1993 and regulates investment firms and securities markets. Many UK fund management groups are regulated under the ISD and all IMA members are major users of the securities markets covered by it.
Previous contentious issues included in earlier drafts of the revision of the ISD have since been removed. UK industry trade bodies were concerned about an limitation on giving investment advice to only fee-based remunerated financial advisers. This has since been disregarded following lobbying by the IMA and Aifa.
However, another European document is now causing concern among IMA members. Euronext, the European stock exchange group, has issued a paper suggesting that all equity transactions should be required to take place on an official stock exchange and, in particular, that internalisation of orders should not be allowed. Internalisation is where a group takes an order to sell from one and matches it with an order to buy from another.
IMA is urging the European Commission to avoid applying a 'one size fits all' approach to regulation of official stock exchanges. Nicoll said: 'Institutional investors should be free to deal where they can get the best deal for their customers.'
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