“The Ucits manufacturers are not covered by Mifid II rules, but someone distributing the funds who is under Mifid rules would need to put arrangements in place to get the necessary information from the Ucits manufacturer of the funds, and that can mean some disagreement on the level of what is required where it is not set out in regulation.
“It can also produce an awful lot of work for both to agree necessary arrangements and put them in place, just to be able to continue with the status quo of distribution.”
Maurice McDonald, a consultant at Bovill, says: “The biggest issue I see in the wealth space is, yes, they can design a framework that looks at types of products and the appropriateness of those clients, but I am not persuaded that all firms have gotten underneath the bare bones of what is required.”
Smaller firms have found Mifid II to be a complex and challenging hurdle to cross, especially for those with access to limited technical and compliance resources.
Product governance hurdles
Keith Maner, head of compliance at Thistle Initiatives says, one of the main issues has again been the product governance rules, which so far do not appear to have been addressed as a priority by firms.
He believes the FCA’s recent actions in relation to the contracts for difference market are likely to set a precedent for how the Mifid II product governance rules will be implemented and enforced across the spectrum of financial services firms and investments, but particularly in relation to high-risk, complex financial products.
Mr Maner notes: “The recent 'Dear CEO' letter should serve as a loud warning to all firms involved in the manufacture and distribution of financial products. They would be wise to consider their own arrangements as they must be able to demonstrate they have adequate product governance policies and procedures in place that match their Prod obligations, and in doing so will require careful analysis and adequate internal resources.
“Careful thought should be given to the boundaries between Mifid and non-Mifid business, distribution activities and manufacturing. The application of rules and regulation and the customer-protective intent the FCA has in implementing these rules as guidance to non-Mifid activities are noteworthy.”
There is no doubt that Mifid II has brought a number of changes to the advisory sector.