The Financial Services Authority's intention to apply the Markets in Financial Instruments Directive suitability requirements to non-MiFID firms is "unhelpful" for IFAs, says the Association of IFAs.
Ahead of the regulator’s consultation paper on the new conduct of business (Cob) sourcebook – due later this month – Dan Waters, director of retail policy at the FSA, says the regulator is proposing to apply the MiFID formulation of suitability standards to non-MiFID firms as well.
Robin Gordon-Walker, press officer at the FSA, says the approach is designed to achieve a level of consistency between MiFID and non-MiFID firms and he claims the requirements are only slightly different to the current Cob regime.
But Tracey Mullins, director of public affairs at Aifa, says the proposal is unhelpful because the MiFID suitability standards require IFAs to take into account the client’s professional qualifications when they give advice.
She states: “A consumer may seem au fait with finance but they may have no formal qualifications, even a maths GCSE, whereas a professional person such as a lawyer doesn’t necessarily have financial expertise. MiFID requires firms to take professional qualifications into account and this is not helpful.”
The FSA has previously stated it will take a flexible approach to MiFID’s suitability requirements, but Mullins says Aifa would be concerned about the way the Financial Ombudsman Service (Fos) interprets the rules if a complaint arises.
Waters also suggests the FSA will adopt MiFID’s client categorisation proposals for non-MiFID firms, as feedback so far has favoured a consistent approach.
This would mean the current private, intermediate and market counterparty categories would be replaced with retail, professional and eligible counterparty categories.
Mullins says the change would only result in minor administrative costs for IFAs because most of their clients are private and would automatically fall into the MiFID retail category.
Similarly, the FSA has proposed intermediate customers could be grandfathered into the professional client category of MiFID, which means IFAs will not have to re-classify existing customers.
Without this proposal, individuals would only fall into the professional client category if they satisfy two out of three criteria: have a cash and investment portfolio of at least €500,000; carry out at least 40 trades a year; and/or have worked in the financial services industry for at least one year.
This would mean riskier financial products, such as hedge funds, would be off-limits to individuals who do not meet two out of the three criteria and who would fall into the lower-tier bracket of ‘retail client’ under MiFID, despite the fact they were classified as intermediate before MiFID.
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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