MiFID II – Independence article 1

Important Note

This is a summary of detailed analysis that ATEB has undertaken of the requirements detailed in the MiFID II Policy Statement. Our full analysis will be discussed with ATEB clients as part of our ongoing service arrangements. 

This article is one of a series. It is biased towards ‘typical’ ATEB clients. It is a very high-level summary and does not therefore cover every MiFID connotation. It does include our interpretation of the requirements, where there is a lack of clarity, and should therefore be used with discretion and read with a questioning attitude. 

All firms should read the Policy Statement

Accessing the FCA Handbook 

We do not replicate FCA rules in this article, but refer to them. The made rules are contained in the annex to the Policy Statement but to access the relevant rules as they will be in their final context, you will need to forward date the FCA handbook. To do this:

  • Go to the FCA Handbook;
  • Click on ‘Show Timeline’;
  • Select a date well into 2018; 
  • Access the relevant handbook

 

Independence 1

The FCA will adopt the MiFID II independence standard for personal recommendations to retail clients in relation to MiFID or non-MiFID retail investment products, such as insurance-based investments and personal pensions. 

Independent advice is defined as, “a personal recommendation to a client where the personal recommendation provided meets the requirements of the rule on independent advice”. Fair enough, but what does that involve? 

Firms offering independent advice must assess a sufficient range of relevant products available on the market. The products must be sufficiently diverse in terms of type and provider to ensure that the client’s investment objectives can be suitably met. 

Independent firms cannot limit recommendations to products provided by the firm itself or related entities. 

To be independent, the assessment of suitability must include a sufficient range of financial instruments, structured deposits and other retail investment products. 

We’ll talk more about ‘financial instruments’ in the next article. Meantime, the specific inclusion of structured deposits is significant and should lead firms, who wish to remain independent, to submit a Structured Deposit Notification to the FCA. 

https://www.fca.org.uk/markets/mifid-ii/structured-deposits

The highlighting of a ‘personal recommendation’ within the definition of independent advice is also significant. A change has been made to the Regulated Activities Order (UK legislation) which means that most regulated firms who do not provide a personal recommendation will be exempt from the need to hold the ‘Advising on investments’ permission. The aim here is to provide a clearer distinction between firms providing advice and those merely providing information to clients to make their own financial decisions. We’ll let you decide if that clarity has been achieved. 

Of course, those firms involved in making personal recommendations will require the ‘Advising on investments’ permission. A quick check of a firm’s current permissions should provide the necessary reassurance.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

It is important that firms understand the revised definition of independence. Firms wishing to remain independent should ensure that their permissions are appropriate and the advice process evidences assessment of a sufficient range of relevant products, not forgetting the addition of Structured Deposits and ‘financial instruments’ to the definition. For most firms who are currently independent and who operate a robust advice process, we would not expect a need for any substantial changes. However, the submission of a Structured Deposit Notification to the FCA should be an action point for any independent firm.

Action Required By You

  • Firms must be clear on whether they will provide personal recommendations or merely provide information to clients; 
  • Assuming personal recommendations will be made to clients, firms should check their current permissions to ensure they include ‘Advising on investments’; 
  • Independent firms should submit a Structured Deposits Notification if not already done, assuming they wish to remain independent; 
  • Contact ATEB if you need further clarification or assistance.

About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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