Compliance and the role of intermediaries are on the agenda of the first consultation paper on the Markets in Financial Instruments Directive (MIFID) today delivered to the European Commission by the Committee of European Securities Regulators (CESR).
The consultation is broken down into three main sections: regulation of intermediaries, markets, and cooperation and enforcement issues.
While wide ranging in scope, the specific recommendations on intermediaries, compliance and best execution are probably those most directly relevant to IFAs.
Among the intermediary issues tackled include:
- organisational requirements
- internal compliance and control
- internal procedures and systems for the provision of services
- outsourcing of services
- record keeping
- safeguarding of clients’ assets and funds
- identification and management of conflicts of interest
- conduct of business obligations
- information to clients
- clients’ agreements
- best execution obligations
- order handling rules
Providers of investment products and services would also be required to meet stronger demands on compliance.
”CESR proposes, for example, that investment firms be required to establish permanent and effective compliance policies, procedures and functions,” the Committee states.
”In particular, the compliance function has to monitor, on an ongoing basis, the adequacy and effectiveness of the internal policies and procedures and report results at least to senior management. In addition, investment firms will have to set up, where appropriate, internal audit control systems and independent and internal audit risk control functions.”
”This approach should enhance and strengthen the effectiveness of initial measures to check compliance with applicable rules and should there fore help regulators to detect any misbehaviour band by doing so protect investors.”
The CESR also proposes a “concept paper” on the issue of best execution, including factors that investment firms have to bear in mind, as well as proposals on how order execution “should be designed and reviewed by investment firms”.
Transparency in investment services will be crucial, which is why notes on transparency are peppered throughout the consultation paper’s articles.
MIFID replaces the Investment Services Directive adopted in 1993, and is intended to help create a truly single market in financial services across the EU.
The FSA is involved in the CESR’s work through several direct links, both as a member of the committee, and, for example, through the role of FSA chairman Callum McCarthy’s position as chair of the CESR Expert Group on Intermediaries’ Issues – one of three Expert Groups used to develop proposals and deal with technical issues relating to recommendations made by the CESR.
The Committee has set 17 September for comments on its proposals published today, and the dates of 8 and 9 July for public hearings on the issues raised, to take place at its Paris headquarters.
Responses be delivered online at www.cesr-eu.org under the section “Consultations”. Those interested in attending the public hearings can register through the same web link under the section “Hearings”.IFAonline
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