MiFID II – Independence article 2

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 2

The previous article on independence indicated that, for firms to be independent, their assessment of suitability must include a sufficient range of financial instruments, structured deposits and other retail investment products

So, independent firms should continue to consider retail investment products. As a reminder, these include:

  • a life policy;
  • a unit;
  • a stakeholder pension scheme (including a group stakeholder pension scheme);
  • a personal pension scheme (including a group personal pension scheme);
  • an interest in an investment trust savings scheme;
  • a security in an investment trust;
  • any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset;
  • a structured capital-at-risk product;

However, as indicated above, Structured Deposits are now added to the mix (assuming the necessary notification has been submitted to the FCA), together with MiFID II financial instruments, which include:

  • Transferable securities;
  • Money-market instruments;
  • Units in collective investment undertakings;
  • Financial contracts for differences;
  • A whole range of different types of options, futures, swaps, forward rate agreements and derivatives.

It is important to note that the MiFID II additions include products which few firms will have advised on in the past and which they may consider unlikely to be recommended in the future. This highlights a potential option for some firms. 

MiFID II will enable independent firms to narrow the scope of their advice and provide an independent service which may be described as focused or specialist. Such an approach is acceptable, so long as the specific nature of the independent service is made clear to the client, most probably within the firm’s disclosure documentation. And let’s not forget that the option to operate as a restricted firm still exists.

All the above appears to be endorsed within the revised COBS rules, which state, “a firm providing independent advice should be in a position to advise on all types of relevant product within the scope of the market on which it provides advice.”

However, there is then an apparent immediate contradiction in the revised rules as they go on to state, “When the client is a retail client in the United Kingdom, this (independence) means being in a position to advise on all types of financial instrument, structured deposit and other retail investment products.”

Most independent firms deal with UK based retail clients. ATEB’s interpretation of “being in a position to advise” includes having in place appropriate systems and controls, CPD, qualifications and permissions. If such a requirement does apply to all types of financial instruments (as listed under MiFID II) it raises some interesting questions and challenges for many firms.

ATEB sought clarification of this apparent anomaly from the FCA. To us, this apparently harmless little phrase carried with it potentially significant difficulties for firms. In response, the FCA acknowledged that this is a complex question, so it was not surprising that we had to wait nearly three months for a substantive response from the regulator. Finally, in late December 2017, we received an answer. You can read the clarification here

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

Firms should be clear in their own minds as to which business model they wish to operate; fully independent, focused independent, restricted or some form of combination (although the ability to combine independent and restricted is curtailed under MiFID II). All client communications, particularly disclosure documentation, must reflect the nature of the service being offered and so will require review and/or amending in most firms.

The apparent anomaly concerning the ‘in a position to’ requirement is concerning, but ATEB continues to seek the necessary clarification from the FCA. Whilst firms should be aware of the issue, we would not advise our client firms to make any significant changes to their service offering and supporting business model until we receive clarification from the FCA.

Action Required By You

  • Firms must determine the nature of their advice offering and ensure that clients are clearly and accurately informed; 
  • A Firm’s permissions, disclosure documentation, research and due diligence, competency regime and marketing approach should be appropriate to its preferred business model; 
  • ATEB will continue to seek clarification of the ‘in a position to’ implications from the regulator and update client firms accordingly; 
  • Contact ATEB if you need further clarification or assistance.
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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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