WMA: Scrap ‘failed’ RDR definition of independence
The Wealth Management Association (WMA) has called on the FCA to scrap the “failed” RDR definition of independent advice.
The organisation has told the regulator to replace the definition with the provisions in the European Union’s (EU) Markets in Financial Instruments Directive II (MiFID II) legislation.
The trade body, which represents UK wealth management and stockbroking firms, has said the MiFID II concept of independence better reflects the “the generally understood dictionary definition of independence” than that of the RDR, which came into force at the end of 2012.
It stated: “We believe the RDR should be replaced by the provisions in MIFID II, as this would provide an opportunity to address some of the anomalies arising under the current RDR regime.”
The original MiFID legislation was introduced in the UK in November 2007 but the EU has embarked on an effort to revise and improve it in light of the financial crisis and to strengthen investor protection. It is expected MiFID II rules will go live from 3 January 2017.
The WMA has been assessing the potential implications of MiFID II with its members and has now submitted its response to the UK regulator’s discussion paper on how best to implement the regulations.
In its response it stated that the RDR definition “continues to be widely misunderstood”.
It said: “Our belief is that the RDR has failed to meet its objective in terms of clarity of service. The adoption of ‘independent’ and ‘restricted’ labels has been widely misunderstood and there is a total lack of clarity as to the meaning of such labels.
“We would refer you to our earlier comments and we would reiterate that MiFID II’s definition better reflects the generally understood dictionary definition of independence i.e. not influenced or controlled by others.”
The WMA asserted the FCA’s approach to MiFID II essentially entails having two regimes, one being a modified version of the RDR for retail investment products (RIPs), including some MiFID investments, and another regime for all other MiFID investments which are not RIPs.
“Given the inherent problems stakeholders encounter in understanding the existing RDR regime, the introduction of another regime for all other MIFID investments that are not RIPS would compound the confusion amongst stakeholders,” it added.
Ian Cornwall, director of regulation at the WMA, said: “The WMA is collaborating closely with our member firms to address the challenges arising from the implementation of MiFID II. We are continuously engaging with the FCA and providing them with detailed implementation issues we are identifying as part of our work on MiFID II.
“The issues we raise in our discussion paper response reflect some of this work. The challenge of successfully implementing the provisions of MiFID II can only be met by a collaborative approach with all stakeholders.”
