Esma: Use Mifid to promote offshore products
Incoming Mifid II rules could be used to encourage greater use of offshore products among investors in the UK, the European Securities and Markets Authority (Esma) has argued.
Esma, which provides regulatory assistance to the European Commission, has responded to a paper from the commission that criticised the EU-wide retail financial services market for being uncompetitive.
In its response, Esma claimed that Mifid II – set to come into force in January 2018 – could be “strengthened” to highlight offshore products, for example among advisers.
“Customers often lack access to information about cross-border financial products, making it difficult to shop beyond their home country,” Esma said.
“One way that cross-border retail participation in Ucits could be increased, is by encouraging providers to offer investors access to funds at competitive prices.”
The European Commission’s 2015 green paper initially sought to explore how the European market for retail financial services could be “further opened up” while maintaining adequate levels of consumer protection.
The commission used the document to raise concerns about “fragmented markets and insufficient competition”, noting EU retail financial markets showed “little cross-border activity”. The body also questioned if greater distribution of products could be encouraged via intermediaries.
Esma suggested one way to achieve greater cross-border activity could be via amendments to the Mifid II rules.
“The Mifid II distribution rules could be strengthened to require firms to include in their assessments and offers non-domestic products,” Esma said.
“For instance, reference to non-domestic products could be introduced among the requirements for independent advice.”
It noted such a reference to offshore offerings could also be considered when “defining situations in which firms may accept inducements that may be deemed to enhance the quality of the service to the client”.
Continuing the debate over which products should be deemed as “complex” in Mifid II, Esma also used its response to raise further concerns.
In March, Investment Adviser revealed industry trade bodies had once again lobbied the commission to overhaul Mifid II proposals that treat non-Ucits products as “complex”.
Currently, non-Ucits products and a large number of multi-asset funds would be designated as complex. However, Esma suggested funds using “more complex strategies” could also fall under this definition.
“The commission should consider whether all non-structured Ucits can continue being classified as non-complex instruments, for instance when the funds invest through more complex strategies,” it said.