As we move towards the anniversary of MiFID II’s implementation, the FCA are becoming increasingly stringent in their enforcement of the regulations laid out there.
While the FCA are obviously aiming for total MiFID compliance, they do seem to have a select number of specific concerns. In particular, the FCA’s most recent push for MiFID compliance is focussed on the issue of financial advisers providing explanations of their costs and charges to clients. This is a key element of MiFID’s insistence on transparency and investor protection, owing to the fact that it allows potential customers to compare costs between different advisers. As the year comes to a close, the FCA are beginning to lose patience with advisers who are still yet to comply with this facet of MiFID II.
Closely tied to this is the issue of record keeping. In order to provide clients with the information they need regarding cost, advisers must ensure that they keep records which will allow this. As such, it seems this new push by the FCA will also involve a fair amount of scrutiny over record keeping – another central tenet of the most recent iteration of MiFID.
To this end, FCA has promised to undertake a mystery shopping initiative to ascertain which advisers are most culpable. This will involve FCA representatives approaching advisers in the role of potential customers so as to ascertain how closely they are adhering to MiFID II’s regulatory guidelines relating to transparency of cost.
This is supported by claims made by FCA Chief Executive Andrew Bailey. In June of this year, he claimed that the FCA would begin to hold firms to account for failing to comply with MiFID. He stated that he had taken a more lenient approach in the months immediately following MiFID II’s implementation on 3 january in an attempt to give firms the necessary time to adopt to the new legislative framework.
However, as we approach the end of 2018, the FCA’s patience seems to have run out. As reported in an article by FTAdviser, an unidentified FCA spokesperson has re-emphasised that ‘MiFID II now requires the disclosure of more detail on costs and charges’. He continues that ‘all costs must now be aggregated and disclosed as a cash amount and a percentage’.
However, this stance does not necessarily acknowledge the difficulty in obtaining certain sets of data. In particular, many advisers have highlighted that, while direct costs are relatively easy to calculate, payments made by way of discounts and rebates are much hard to quantify.
As well as this, a number of firms remain uncertain about MiFID II’s regulations concerned with payment for research. While, generally speaking, advisers are not entitled to receive research for free, there are several exceptions to this rule. Many understand that they are required to pay for any research they receive, and that they must ensure that the research they receive is transparent. Despite this, there is still a reasonable amount of confusion about what firms are entitled to receive for free, thereby impacting the reliability and accuracy of their explanations of costs.
Clearly then, like so many other issues surround MiFID II, a number of the issues arising can be ascribed to a simple lack of understanding with regards to what is required of different parties. However, as time continues to tick by, this excuse is becoming less and less viable. The FCA is simply no longer willing to accept uncertainty or ignorance as an acceptable reason for lack of compliance. If advisers wish to avoid hefty fines or other legal repercussions, they must attempt to adhere to MiFID II’s regulatory guidelines, regardless of the difficulty this may entail.