Lords: RDR commission ban ‘preferable’ to Mifid disclosure
Report into new European Commission proposals praises consistency of FSA approach.
The House of Lords has released a report into the revised proposals for the second phase of the European Commission’s Markets in Financial Instruments Directive, in which it calls for the watering down of a proposed ban on commission to be reversed.
Last week, a revised draft of the Mifid II directive was published including amendments tabled by the Committee for Economic and Monetary Affairs (Econ), which saw the ban on commission payments to advisers removed and revisions to the definition of independence softened.
The Econ amendments state that the wording of Mifid II should be changed to allow commissions and other monetary payments “if the client has been duly informed of such fees” before the service is provided, or if the commission is “to the ultimate benefit of the client”.
However, in the House of Lords report, published today (10 July), the European Commission’s revised proposals are described as “flawed”.
In particular, the Lords’ dismiss suggestions to limit restrictions on payment of inducements to independent advisers as “unworkable”, saying “advisers will simply take steps to avoid being classified as independent”.
The paper adds that a “consistent approach to consumer advice is needed”, highlighting the Financial Services Authority’s RDR plans as a model for this.
The paper says: “A more consistent approach to consumer advice is needed to ensure that consumers are adequately protected.
“One model for this is the approach adopted by the FSA in its Retail Distribution Review, which deals with the status and remuneration of advisers generally, and prohibits all payments in the form of commission.103
“In our view, this would be preferable.”
Generally the Lords paper is critical of the Mifid proposals, which are variously described as “ill thought out” and of being implemented with “undue haste”.
The paper says: “We are very concerned that the undue haste with which Mifid II has been brought forward means that the commission simply hasn’t had time to think through the implications of its proposals.
“The consequences of ill-thought-out legislation, not only for the City and the EU financial sector, but for consumers of investment services throughout the EU, could be hugely damaging.”