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FCA plans extension of MiFID II independent advice rules

FCA plans extension of MiFID II independent advice rules

The Financial Conduct Authority has proposed extending the independent advice criteria set out in the Market in Financial Instruments Directive II to products that fall outside the EU directive's scope.

In a consultation paper released today (29 September), the FCA said it would extend the directive on independence to non MiFID II retail investment products, such as personal pensions and insurance-based investments.

However, professional clients and those based outside the UK would only be subject to the MiFID II rules, the regulator stated.

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"We believe our approach to implementing the MiFID standard will achieve a similar outcome and level of consumer protection in respect of both limbs of our current standard," the regulator stated.

It said the decision would "ensure consistent regulatory standards, a competitive, level playing field and to prevent potential consumer confusion".

The FCA said that in a previous consultation, attitudes to the differences between Retail Distribution Review rules and MiFID II rules had been mixed, but the general view was that MiFID II was preferable.

"Some respondents felt there was a difference, with the UK standard being more onerous. Others believed that the two standards would lead to similar outcomes. Overall, a majority felt that the MiFID II standard was preferable," the paper stated. 

It said many respondents viewed RDR requirements for independent advisers to cover all products on the market was "impracticable", while MiFID II rules were "more realistic or closer to the common meaning of independent than the RDR standard".

But the FCA's consultation found that even if it did extend MiFID II rules to all retail investment products, 75 per cent of advisers would make no change to the scope of products they covered.

Those that said they would limit the scope, meanwhile, would only exclude complicated and niche products such as hedge funds and unregulated collective investment schemes- products which the FCA noted were outside its regulatory mandate.

However, there were some MiFID rules that the FCA said it would not extend to non-MiFID products in the UK, mostly because it considered current rules stronger.

The regulator considered UK rules dealing with advisers who recommend their own products alongside other products stronger than the MiFID rules, and therefore said they would remain for non-MiFID II products.

The FCA also said it would not adopt a rule preventing independent advice firms giving "undue prominence" to their independent investment advice services over non-independent competitors.

"Our view is that it is not clear what specific consumer detriment this is intended to guard against given any communications must be fair, clear and not misleading," the paper stated.

james.fernyhough@ft.com