UK FSA sees no MiFID II headache for its commission ban

The UK Financial Services Authority has responded that it is not concerned about a vote carried by the European Parliament’s Economic and Monetary Affairs Committee (ECON) to effectively allow commission payments to retail clients under certain circumstances.

Commission is set to be outlawed in the UK retail market under the Retail Distribution Review, or RDR, which has been pushed into being by the UK FSA – an organisation that under its original mandate has also been tasked with certain elements of consumer protection.

However, the members of ECON last week crucially responded to a last minute “oral amendment” put forward by the Parliament’s Socialist group (S&D), which on the face of it leaves both the FSA with a problem implementing the commission ban element of RDR, but also leaves the Green group of MEPs feeling that the emphasis has moved away from their own hardline stance on the issue.

The final text of the agreed amendment is still being drawn up by the Parliament’s Secretariat, regarding the proposed Article 24 of MiFID II: General principles and information to clients.

Within Article 24, section 1c as originally considered by ECON the text read:

Member States shall ensure that investment firms are not regarded as fulfilling their obligations under Article 23 or the first paragraph of this Article where, in particular, they pay any person except the client or are paid any fee or commission, or provide or are provided with any non-monetary benefit in connection with the provision of an investment services or ancillary service by any party except the client, other than where the payment of the fee or commission, or the provision of the non-monetary benefit:

   (a) is transferred to the investor accompanied by documentation detailing all the services and the fee or commission that is associated with it; or

   (b) enables or is necessary for the provision of investment services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and which, by their nature, cannot give rise to conflicts with the firm’s duties to act honestly, fairly and professionally in accordance with the best interests of its clients; and

   (c) its existence, nature and amount, or, where the amount cannot be ascertained, the method of calculating that amount, must be clearly disclosed to the client, prior to the provision of the relevant service.

However, following the last minute push for a change, instead of the text reading 1c a)… or b)… and c), it will read a)… or b)… or c).

Taken together it means that the door is left open by ECON for MiFID II to allow commission, in direct contradiction to the RDR.

However, the FSA has responded that it is relaxed by the outcome of the ECON vote, as European rules allow national jurisdictions to go “above and beyond” the minimum standards agreed at the European Directive level.

Indeed, a spokesperson for the UK regulator said: “Europe has been well briefed on this [RDR],” adding “We don’t expect any conflict.”

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