Providing selective information to a client could amount to investment advice under the Markets in Financial Instruments Directive, says the Financial Services Authority.
The FSA has published the final version of its perimeter guidance covering the scope of MiFID and the Capital Requirements Directive (CRD) to complement the process it is taking of writing individually to firms likely to be affected by the directives.
It explains investment advice under MiFID means providing personal recommendations to a client, either at their request or on the firm’s own initiative, in respect of one or more transactions relating to MiFID financial instruments, such as shares and derivatives.
A personal recommendation is similar to the UK regulated activity of advising on investments, but is narrower in scope because it requires the recommendation to be of a personal nature.
Advice about financial instruments in a newspaper, magazine or television broadcast is therefore not a personal recommendation for the purposes of MiFID.
The paper says merely providing information to clients, such as advice on how to fill in an application form and explaining the risks and benefits of a particular financial instrument, should not itself normally amount to investment advice.
But it adds: “However, you should bear in mind that, where a person provides only selective information to a client, for example, when comparing one MiFID financial instrument against another, or when a client has indicated those benefits that he seeks in a product, this could, depending on the circumstances, amount to an implied recommendation and hence investment advice for the purposes of MiFID.”
The paper also confirms most IFAs will be exempt from MiFID under article 3, but they will be still be able to acquire passporting rights by applying to opt into MiFID regulation.
The FSA will shortly publish a practical guide for firms to assist them in deciding whether they need to apply for variations of permission or make passporting notifications as a result of the changes in scope arising out of MiFID implementation.
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 7034 2680 or email [email protected].IFAonline
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