Mifid II  

Advisers warned about Mifid II compliance

Advisers warned about Mifid II compliance

Financial advisers should reassess their firms' compliance with the Markets in Financial Instruments Directive (Mifid II) or risk falling foul of increasing regulatory scrutiny, experts have warned.

According to a number of legal experts the Financial Conduct Authority is embarking on work which will scrutinise intermediaries’ compliance with Mifid II, looking specifically at adviser explanations of charges and their record keeping.

It is understood the regulator is losing patience with advisers who have still not implemented adequate processes to make it easier for clients to compare costs.

Susann Altkemper, a financial services lawyer at CMS, said: "The FCA has vowed to undertake some mystery shopping around this topic and a paper is expected to be issued at some point.

"The FCA will want to be seen to be doing the right thing for investor protection, albeit whilst recognising that this is a new area.

"It is not always easy to identify the exact costs related to transactions. The key topic for the FCA will probably remain costs and charges, product governance and inducement rules."

The FCA has not responded to this suggestion. But in a grilling before the Treasury select committee in June FCA chief executive Andrew Bailey said the regulator would start holding firms to account for failing to comply with Mifid.

When contacted by FTAdviser, an FCA spokesman underscored the responsibilities relating to costs that intermediaries have under the regulations.

He said: "Mifid II now requires the disclosure of more detail on costs and charges, and provision in a specified form.  For example, all costs must now be aggregated and disclosed as a cash amount and a percentage. 

"Mifid II also requires firms to provide periodic statements, that must include information about the fees and charges incurred during the reporting period, to clients with whom they have an ongoing relationship."

The regulator added the requirements applied from 3 January 2018 and do not require disclosure of costs and charges incurred before that date.

Richard Tall, a partner at Faegre Baker Daniels, agreed costs and charges are likely to be right at the top of the agenda for closer regulatory scrutiny.

"They are going to be huge on presentation of costs," he said. "Both in respect of upfront costs, and historical."

Tall expects the regulator to take a particularly dim view of firms who are not passing back product rebates to clients.

He said: "A direct cost, such as an adviser charge, is easy to define as it is a fixed sum. The bit that people are going to struggle with, is where there are payments being made to the adviser firm by way of discounts, or rebates, and that is where people are going to fall over."

Experts have highlighted similar confusion on the rules over charging for research, with specialist research group Hardman & Co claiming that many adviser firms are still unsure about this area.

CEO Keith Hiscock said while advisers were not permitted to receive research for free under the inducement rules, there were a number of exceptions.