IFAs can apply for an optional exemption from the Markets in Financial Instruments Directive (MiFID) but this does not mean they will escape the Directive's effects, according to Stephen Hanks, economic adviser at the Treasury.
Speaking at a Securities & Investment Institute (SII) conference – MiFID: the next steps to implementation – Hanks confirmed the Treasury will implement Article 3 of MiFID, which creates an optional exemption for firms which do not hold client money, and states the majority of responses to the Treasury’s consultation paper on MiFID supported this proposal.
But he adds this does not mean exempted IFA firms will entirely escape the Directive’s effects as questions remain over which rules the Financial Services Authority (FSA) will apply to firms which are not legally required to comply with the Directive.
The FSA will issue a consultation paper on so-called “out of scope” firms in October 2006, and Hanks suggests the regulator will want to ensure there are no “competitive distortions” between MiFID firms and out of scope firms.
Angela Knight, chief executive of the Association of Private Client Investment Managers and Stockbrokers (Apcims), states many grey areas remain over how certain aspects of MiFID will apply in the UK, particularly relating to suitability and appropriateness requirements.
For example, high-net-worth clients may want to invest in riskier products, but Knight says these may not meet the suitability requirements under MiFID.
It is also unclear how a firm will know if it has been given “all” relevant information, and when exactly suitability assessments have to be made.
Meanwhile, appropriateness comes into play during execution-only transactions, but it is not yet known what will happen if an adviser issues a product to a client which is later not seen as “appropriate” under the MiFID definitions.
Knight suggests product providers will hold responsibility further down the chain at the end customer level.
She adds it may be necessary to separate suitability in the context of giving investment advice from suitability and appropriateness assessments more generally.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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