Director of regulation at WMA, Ian Cornwall, said the lack of clarity over definitions and protocols contained in the European Securities and Markets Authority’s (ESMA) technical guidance and advice for implementing MiFID II had made it difficult to predict the future position of RDR.
“We are not quite clear where we are going to be in a post-MiFID environment,” he said. “There are differences between RDR and MiFID, such as their definitions of independent advice.”
“It has always been said that RDR will be compatible with MiFID, but, at the moment, it is a case of watching this space.”
'Bombarded with questions'
He added that there is a “shedload” of terminology that is currently undefined: “ESMA do not engage with the industry before writing their implementation of MiFID and I expect they get bombarded with questions over definitions, which only they will review."
He said the WMA had been working to provide guidance to smaller companies who do not have the resources or time to handle documents like ESMA’s technical advice and guidance, which come in at over 500 pages and 300 pages respectively.
“Most firms do not have the resources to look through all the guidelines, things like this suck away at your top resources,” he said. “There are several other trade bodies and we are all trying to help each other with this process, the deadline is pretty horrendous.”
Chief executive Tim May added that the wording of the legislation had changed from one revision to the next, adding further difficulty to its interpretation.
“The legislation has been written by people who are not experts, and now people who are experts are trying to interpret it,” he said. “The differences in the wording of MiFID II and RDR illustrating how the regulatory landscape across Europe will not be the same.”
Cornwall also took to task MiFID’s loosely defined requirement for product distributors to know their “target market” in order to allow the activities of product manufacturers to “read across”, claiming that most of the WMA’s clients did not have a target market.
“Most would say their target is the ‘general market’, this is something that will definitely require further contact with the regulatory.”
He added that the directive’s requirement for phone records to be retained for five years instead of the current six months could prove expensive because of the arduous process of indexing calls so they can easily be found.
An eclipse of RDR
This does not mark the first time the WMA has questioned RDR’s future at the hands of MiFID II. In January, deputy chief executive John Barass said he feared that if MiFID II was allowed to over-rule national regulators it could eclipse the effects of the Retail Distribution Review on the UK financial advice industry.
He said the agreed MiFID II appeared to permit an override by national regulators, enabling them to impose their own rules on EU member countries, making RDR’s future uncertain.
MiFID II, which will not be fully implemented until 2016, will address the residual effects of the financial crisis by improving financial market transparency and strengthening investor protection within the insurance and investment market.
It features a variety of proposals aimed at improving the protection given to investors in the insurance and investment markets
The proposals include:
- Limitations on the receipt of commissions.
- An enforcement of the clear distinction between independent and non-independent advice.
- Requirements to include risk identification in the manufacture and distribution of financial products.
- Powers for regulators to prohibit or restrict the marketing and distribution of certain financial instruments.
Requirements to provide clients with details of all charges related to their investment.