Firms could face enforcement action from the regulator if they do not make reasonable efforts to implement the Markets in Financial Instruments Directive by the November deadline, the Financial Services Authority has warned.
Speaking at a Securities & Investment Institute (SII) conference on MiFID implementation, Chris Hibben, head of the MiFID implementation office at the FSA, confirmed the regulator will carry out a thematic review of firms in the first quarter of 2008 to assess their compliance with the directive.
He states: “We will be evaluating whether firms have made all reasonable efforts to implement MiFID by the November deadline. If they have not, they may face enforcement action from us and law suits from third parties.”
Hibben says the review will be a risk-based one and will concentrate on the areas where failure to implement the directive is most material. The regulator will shortly hold discussions with trade bodies to work out which these priority areas are.
He adds: “It is encouraging that some firms are starting to see the opportunities that MiFID will bring. But it will bring costs because any regulatory change involves costs and it will cause changes in the market over time.”
Guy Sears, deputy chief executive of the Association of Private Client Investment Managers and Stockbrokers (APCIMS), believes the most important change flowing from MiFID and the new conduct of business rules (NEWCOB) is firms must be fair, clear and not misleading in every communication they have with clients.
He states: “At first the financial promotions obligation looks like something we recognise, but it is important to realise the obligation extends to all communications – to everything anyone says or writes to their clients.”
He suggests advisers who are confused about implementing MiFID should go to their trade body and ask if they are willing to produce guidance which can be confirmed by the regulator.
Simon Morris, partner at law firm CMS Cameron McKenna, says: “The key rules for advisers are around conflicts, systems and controls, and passporting. Adviser’s systems should at least contain a note that they have considered the MiFID rules. The suitability duty remains, but advisers must go through the formal hoops of ascertaining the client’s objectives and ensuring they have a paper trail of everything.”
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