Britain’s decision to exit the European Union is unlikely to change the need for financial advisers to meet Mifid II requirements and the demands of other rules generated by Brussels, according to regulation experts.
The UK’s decision to exit the European Union on Thursday (23 June) prompted the resignation of prime minister David Cameron, a fall in the FTSE 100 of more than 5 per cent and a collapse in the pound’s value to a 30-year low of $1.32.
Amid this market and political turmoil, there has been uncertainty over when and how Britain will trigger the process of formally leaving the EU, which is expected to take two years.
But despite this upheaval regulation experts have said advisers who hoped a Brexit would cut the amount of European regulation they face are set for disappointment.
Far from resulting in the axing of Mifid II requirements, which demand financial advisers give much more information about their costs and for providers to check their products are being distributed to the target audience, these rules still look set to come into force.
Mark Spiers, head of wealth management and banks at regulatory consultants Bovill, said Mifid II, which is due to come into effect in January 2018, is very much the brainchild of the Financial Conduct Authority.
He said: “One of the prime movers behind Mifid II was the FCA so it doesn’t really matter if we leave the EU tomorrow or today - it is coming in come what way.
“Our current position is that Mifid II will not materially change and if we go for full Brexit we will want to acquire third country status.
“That means you can get access to the European market and the European consumer but you have to follow their rules.”
Simon Gleeson, a partner at City law firm Clifford Chance, said the need to retain EU rules and to continue to introduce future regulations created in Brussels in order to gain access to the European market was raised during the referendum campaign.
He said: “The damage you might do to the City by not having third country status is greater than the benefits you thought you were going to gain by not implementing whatever it was in the first place.
“Mifid II was largely written by the FCA anyway. My feeling is the starting point for the Treasury and the FCA is an absolute determination to be fully equivalent and if that’s your starting point there is no reasonable position other then full implementation.”
Jeffrey Mushens, technical policy director of Tisa, said cross-industry work on the implementation of Mifid II, particularly on the product governance rules, would continue.
He said: “The UK is still bound by membership of the EU, rules and all, until the withdrawal process is complete - which can’t be much before the beginning of 2019.
“This is a good year after Mifid II is introduced. In any event, I think it is likely that the FCA would introduce it anyway, plus add some gold plating.”
Mifid II was introduced by the EU in response to the 2008 financial crisis and was agreed in 2014.
Its aim is to make financial markets more robust by introducing a whole host of reforms, including the requirement that manufacturers identify a target market and check their products are being sold to them.
Another example of regulation which Britain could have to implement regardless of being outside the EU are the packaged retail and insurance-based investment products rules.
These come into effect in January and introduce a simple document giving key facts to investors in a clear and understandable manner covering not only collective investment schemes but also other “packaged” investment products offered by banks or insurance companies.
For its part the FCA has said EU regulation will remain applicable until the government and Parliament change Britain’s relationship with the trading bloc.
A spokesman for the regulator added that firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.
Ironically some have speculated regulation that could face the axe or delays due to Britain’s decision to leave the EU is unique to our shores and focussed on pensions.
Steven Cameron, pensions director of Aegon UK, urged the government to give an early indication of its plans to take forward initiatives such as the Lifetime Isa and the secondary annuity market.
Mr Cameron said: “Unless we get more detail very soon, the April 2017 introduction looks very challenging. There could also be a question mark over the Pensions Bill announced in the Queen’s Speech to review master trust rules.”
But Chris Hannant, director general of the Association of Professional Financial Advisers, was hopeful eventually the UK could see a regulatory benefit to exiting the EU.
He said: “There may be a regulatory benefit to being outside the EU but if there is that is a good few years down the track.
“There is a question mark over whether it is sensible to carry on with the pension reform agenda given the questions that now need to be resolved.”
HM Treasury said the Lifetime Isa and secondary annuity market would come into effect in April 2017.
