The Markets in Financial Instruments Directive (MiFID) will remove significant obstacles for IFAs wishing to give advice to clients who live in other member states.
Under the current regulatory framework, IFAs are in danger of breaching other member states’ laws if they continue to advise their clients when they move to a country in the EU.
This is because investment intermediaries are currently unable to apply for a ‘passport’, which gives firms the ability to operate in other member states without getting permission from that member state’s regulator.
But Simon Morris, partner at law firm CMS Cameron McKenna, says this will change by November 2007 when MiFID comes into effect and essentially means they will be able to continue to advise investment clients who, for example, have retired to Spain.
The Insurance Mediation Directive (IMD) already allows IFAs who conduct insurance business to apply for a passport, and MiFID will extend this to IFAs advising on securities, such as unit trusts, and equities.
Article 31 of MiFID states investment firms can apply to their regulator for a passport, while Annex 1 of MiFID says the investment firm’s activities can include investment advice.
IFAs will therefore be able to apply to the Financial Services Authority (FSA) for a passport and they will be free to conduct MiFID and IMD activities – securities, equities and insurance – in other member states without requesting further authorisation.
Morris states: “The directive will remove a significant obstacle. Although IFAs will still need to observe parts of local law, they won’t need the member state’s authorisation.”
After MiFID comes into effect, Morris says an IFA with continental connections will find their business falls into three parts:
- The activity is under MiFID or the IMD and allows passporting – securities, equities and insurance;
- The activity is not covered by MiFID/IMD and is not regulated by the member state – IFAs will be able to conduct this activity abroad despite not having a passport because it is not regulated in the member state; and
- The activity is not covered by MiFID/IMD but is regulated by the member state – IFAs will have to apply for authorisation from the member state’s regulator.
Morris says IFAs would need to carry out research into which non-MiFID and non-IMD activities are regulated by certain member states to ensure they do not breach the regulator’s rules.
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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