EuropeanMar 17 2014

European rules are on their way

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As is usual with European rules, they come in the form of acronyms: MiFID, MiFIR, IMD and the PRIP KID. And, also as usual, there will be staggered implementation dates for the different parts. But the eventual shape of the regime is becoming clearer and it is timely to consider what is likely to emerge.

The original MiFID came into force across Europe in 2007 and set out rules covering the selling of investments, including retail funds. Similarly, the IMD has been in force since 2005, covering insurance products, including insurance investment products.

Both are being reviewed, with the revised MiFID (and MiFIR) passing an important milestone in February by being approved by EU lawmakers.

As a result of the European Commission’s practice of dividing financial services regulation into securities, insurance and banking pots, differences in the selling rules and product disclosure requirements for different retail investments have emerged over time. Now they are being brought together. Following tortuous negotiation and some clever cross-referencing, insurance investment products should end up with selling rules under IMD II aligned to those in MiFID II.

As a result, new inducements rules should apply in a way that is product neutral.

However, the European proposals in this area are different to the UK RDR in some important respects: they apply to ‘independent’ investment advice, but not to restricted advice; advisers may receive cash rebates provided they pass them on in full to the client; and they apply to discretionary investment management as well.

If all goes to plan, by 2017 we may be looking at the RDR applying to discretionary investment management and to professional clients, and all retail investment products having a KID, or a KIID.

Mike Gould is senior adviser, retail distribution at the IMA