Nearly four years of negotiation has culminated in the EU’s Markets in Financial Instruments Directive II, or MiFID II, welcomed widely in the financial sector this week. The negotiation was under pressure to reach an agreement in time to finalise the text ahead of the European Parliamentary elections in May.
But UK financial advisers could face new changes in regulation under RDR depending whether or not the EU –level directive will over-rule national regulators.
RDR survival “unclear”
The EU agreement leaves UK regulators with the task of interpreting the impact of MiFID II on their year-old regime governing financial advice under RDR.
“MiFID and the RDR have different definitions of independent and restricted services, which could mean that the UK has to change its rules again barely a year after a significant overhaul,"John Barrass, deputy chief executive of the Wealth Management Association (WMA), said.
He added that the agreed MiFID II appears to permit an override by national regulators to enable them to continue to impose their own rules, but whether that means the RDR survives is unclear.
UK firm disadvantage?
The WMA welcomed the so-called trilogue agreement between the European Parliament, Commission and Council for enabling firms to develop their plans to accommodate reforms.
But it still throws up whether or not RDR will continue, unaffected by the EU-wide agreement. It also highlights another point, whether or not it will put UK firms at a disadvantage to continental ones covered by a different and less onerous regime.
According to Laura Cox, PwC financial services partner, MiFid II is honing in on some areas that resemble UK financial regulation measures.
“The EU is coming more in line with the UK on investor protection measures, including a ban on inducements paid to independent financial advisors and an obligation to design investment products to meet the needs of specified groups of clients.”
Next steps
Although much of the discussion on the directive focused on a handful of contentious issues, MiFID II will affect all regulated firms in Europe.
The draft legislation is not likely to take effect for at least another two years, with European national regulators responsible for monitoring and enforcing rules.
The European Securities and Markets Authority (ESMA) will consult on further detailed rules throughout 2014. This means that firms should begin to consider their implementation plans in anticipation of being fully compliant by end-2016.
