Many adviser and provider firms dealing directly with customers are unaware of the implications of the updates to the European Mifid rules which the regulator is currently seeking to transpose into the UK, according to the Tax Incentivised Savings Association.
The association believes that there are risks posed by the European Markets in Financial Instruments Directive, particularly around complex products, appropriateness, suitability and product governance.
Responding on the Financial Conduct Authority’s discussion paper, Tisa technical director Jeffrey Mushens said his chief concern is practical implementation of Mifid II could result in “unintended consequences” by reducing options relating to investment choice and type of provider.
“It could also impact the implementation of new technology, by limiting the number of investments available to the consumer to purchase without advice; this would mean that those who do not want to pay for advice would be particularly affected.
“For the industry, any increase in suitability and appropriateness tests will inevitably lead to higher costs and risk for firms, further adding to their regulatory burden.”
The FCA said in its consultation that it plans to extend the definition of products considered ‘complex’ and that therefore require either advice to be taken or for clients to be tested for ‘appropriateness’.
Mr Mushens argued that it is critical that the directive does not extend the scope of complexity to include, for example, peer-to-peer loans or default funds for personal and occupational defined contribution pensions or UK-listed investment trusts.
“We would like to see more details of the specifics of what product governance the directive envisages and encourage the FCA to revisit its obligations to firms in respect of appropriateness tests,” stated Mr Mushens.
Tisa did come out in support of the adoption of proposed standards for independence, which would put the definition back to being related to the degree of tie to providers, but again raised “serious concerns” about the requirements for telephone records to be kept for five years.
Mr Mushens said: “Not only is this impractical but it is also expensive, onerous and of little or no direct benefit to customers.”
At the end of last month the Association of Professional Financial Advisers told the regulator that it needs to choose between enforcing the phone recording rules, or pursuing a “common sense” approach to assist advisers.
The Wealth Management Association also called on the FCA to scrap the “failed” Retail Distribution Review definition of independent advice, favouring the directive’s approach.
peter.walker@ft.com
