The Financial Conduct Authority is set to consult with 4,600 firms on the costs of implementing the EU’s Markets in Financial Instruments Directive, following on from recently sending out a cost-benefit analysis questionnaire to 100 firms.
Last week, the FCA sent out a cost-benefit analysis questionnaire to 100 firms and it is set to send out a further 4,500 this week including some advisory businesses.
According to the FCA, the majority of the cost benefit analysis questionnaire would focus on the retail conduct issues raised in its Mifid II discussion paper published earlier this year.
It said that these included the recording of client contact, conditions for the provision of independent investment advice, stricter organisational requirements for product design and distribution and the disclosure of costs and charges.
In March this year, the regulator published its discussion paper on Mifid II, which will be followed by a consultation paper and then final rules ahead of the implementation date of 3 January 2017.
If the FCA applies the amended Mifid framework, advisers will need to take all reasonable steps to record relevant telephone conversations, face-to-face meetings and electronic communications relating to actual or proposed client transactions.
The regulator also proposed extending the definition of products considered ‘complex’ to a wider range of insurance-based investments and pensions, meaning that financial advice could benefit from a further indirect push.
However, concerns have been raised as to the costs to firms of implementing Mifid II by both the Association of Professional Financial Advisers and the Tax Incentivised Savings Association.
Apfa told the Financial Conduct Authority it needs to choose between enforcing the Mifid II rules on phone recording, or pursuing a “common sense” approach to help advisers.
During stakeholder engagement, the regulator said it widely heard that advisers vary in terms of their commercial practices concerning record-keeping and for some smaller firms this requirement will represent a significant change, with concerns raised in respect to the likely costs involved.
Responding to the regulator’s discussion paper on the directive’s implementation, Jeffrey Mushens, Tisa’s technical director, warned that the “practical” implementation of Mifid II could result in “unintended consequences” by reducing the options for the consumer in the range of investment choice and also in the type of provider.
He said: “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.”
Additional reporting by Donia O’Loughlin