Financial services firms are being urged to start planning for the implementation of MiFID on the basis of Level 2 documentation already published, rather than wait for finalisation of the FSA's consultation on MiFID implementation expected later this year.
The call came from Paul Anning, partner at law firm Osborne Clarke, in a speech to the Financial Promotions Regime Conference hosted by the Securities and Investment Institute, which has outlined factors affecting the FSA’s approach to rules on marketing of financial products and services.
Level 2 documents outline how the overall Level 1 Directive - already agreed by the European Parliament - Commission and member states, will be put into practice through detailed rules.
The current draft MiFID Level 2 documents still leaves open the option of the rules being formulated as a Directive or as a Regulation, Anning says, but the deadline of November 2007 - when MiFID is supposed to come into effect through relevant Level 3 - or national provisions has been agreed by the European Parliament and is now unlikely to slip again.
That means, assuming the FSA’s MiFID implementation programme proceeds towards consultation later this year, firms should not put off planning on the basis they want to wait until the FSA’s rules are finalised, Anning argues.
Changes linked to the MiFID consultation include proposed COB (Conduct of Business) rule changes affecting financial promotions - which are specifically targeted by current article 19 in the draft Level 2 documents.
Anning is pencilling in the fourth quarter of this year for an FSA consultation paper on marketing communications and financial promotions, including MiFID implementation.
A new COB consultation paper, including simplification suggestions, should appear in the same quarter.
COB changes will come with MiFID because the latter represents an opportunity to introduce simplicity, such as an easier to navigate Sourcebook, which may also be “shorter”.
It also matches the general objective of the FSA to move further towards a principles-based approach, Anning says.
Issues remain to be resolved, however, such as whether the FSA will retain separate ICOB and MCOB rules and a split between retail and wholesale business.
Anning says he hopes the FSA moves away from any separate COB provisions as the intended benefits through change could otherwise become “cumbersome”.
The COB changes should provide benefits such as increasing consistency with the regulator’s risk-based approach, flexibility in the regulatory regime, and easing of the burden on smaller firms.
However, the cons include potentially higher compliance costs and questions over the possible impact on the FSA’s statutory objective of promoting consumer protection.
There also remains the key issue of how the FSA will square its scope of regulation covering all authorised firms against the scope of MiFID, which focuses on investment firms, but offers flexibility of interpretation that could yet see it covering other types of businesses, Anning suggests.
Comparisons of marketing rules:
|Scope – investment firms, all information, including marketing communications, all clients/potential clients||Scope – all authorised firms, all information, including financial promotions, all customers|
|”Fair, clear and not misleading”||Clear, fair and not misleading”|
|Express recipient (intended/actual) based test, using “average member”||No similar express test|
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