Hargreaves Lansdown has admitted falling foul of the Mifid II rules earlier this year.
In case you missed it, the FTSE 100 company came unstuck over the rules around confirming the nationality and National Client Identifier (NCI) of clients who are not UK nationals.
Although it had contacted all clients to confirm their identity, and had not invested the money of clients who did not respond to its requests in January and February, as per the Mifid II rules, it did accidentally invest clients' money in March.
It put this right in April and once again contacted all clients to let them know of the error, and the steps it had taken to put it right.
A spokesman for Hargreaves Lansdown told Financial Adviser that the Bristol-headquartered company has reverted to not investing on behalf of those clients it still does not have the legal entity identifier for, as the Mifid II rule requires.
While this was a breach of the Mifid II rulings on NCIs, it is just another example of how increasingly tight red tape actually works against the industry, rather than for it.
If you bind something too tightly, the chances are it will bulge or break out elsewhere. I know, I've tried to get into skinny jeans recently.
Likewise, if you try to bind the financial services industry too tightly, believing you are doing the right thing to protect clients and prevent money laundering, etc, etc, the chances are something will slip through the cracks or seep through the seams.
In this case, companies have relied on consumers to respond to communications that are sent out, and on systems to always work 100 per cent of the time. Where these two things fail to provide the desired effect, mistakes will happen.
Honest mistakes, which in this case, was noticed, communicated and rectified immediately.
But this highlights the issue with Mifid II: the rules are so restrictive, so complicated and have such potentially far-reaching consequences if breached, that firms have tied themselves up in knots trying to stay on the right side of the law.
As one commentator wisely put it, if a company with the resources that Hargreaves boasts can make an honest error, how much more might a smaller firm be at risk of unwitting breaches of Mifid II? And what if that same firm doesn't notice immediately, or is unable to make an immediate change to put things right?
Methinks Hargreaves is merely the tip of the Mifid II iceberg. One can only hope the regulator will be balanced in any future enforcement decisions it will have to make in any future cases.
simoney.kyriakou@ft.com
