ESMA Calls For European Commission To Report On Impact of Inducements Disclosure Requirements Under MiFID II

As stated in a press release published on July 17, the European Securities and Markets Authority (ESMA) has requested that the EC (European Commission) provide evidence of the impact caused by the inducements disclosure requirements enforced by MiFID II.

This request comes as part of a wider ‘call for evidence on certain investor protection topics in the context of the reports to be submitted by the EC under article 90 of MiFID II’. The ‘certain investor protection topics’ which ESMA are requesting be reported on include inducements, as well as cost and charges discolsure requirements as specified under Article 90 of MiFID II.

ESMA have requested that the impact of these requirements be expanded upon. One area of impact which ESMA have specifically requested information on is how these disclosure requirement rules have impacted different European countires. In the press release, they express a desire to  collect ‘information on whether and how the application of the above rules varies across Member States’.

These reports are to be submitted to to the European Parliament and Council. ESMA has stated that responses to the call for evidence must be completed and submitted by September 6, 2019, and that the EC must report directly to the European Parliament and Council of the European Union before March 3, 2020.

Similar Reports By NCAs

While this is the first time that ESMA has called for an EU-wide report on MiFID II disclosure requirements, some NCAs have already filed formal feedback on this topic. In February of 2019, the FCA published a report on the impact of costs and charge disclosure requirements on UK firms in the retail investments sector. This report aimed to examine the extent to which these firms were complying with the regulations laid out in ESMA’s MiFID II and MiFIR Q&A.

The FCA reported a number of significant issues with the nature and quality of the disclosures made by the 50 firms examined in the report. While admitting that ‘all the firms [they] looked at were aware of the rules and their responsibilities to disclose all costs and charges to customers’, they plainly stated that ‘the firms in [their] sample were not interpreting the rules consistently’. The FCA went on to claim that they ‘have some concerns with the way that firms were carrying out these responsibilities’.

However, the reasons for this inconsistent compliance are more complex than a simple lack of effort. Towards the end of the report, the FCA claimed that they ‘found reasonable evidence that their efforts are hampered by required data not being available. These difficulties are compounded when firms try to apply the same approach to disclosure to non-MiFID products in their efforts to deliver greater transparency to customers.’

What Will The European Commission Report Show?

If the FCA’s findings are anything to go on, the ECs report will likely highlight similar inconsistencies in the implementation and impact of MiFID II inducements, charges and costs disclosure requirements.

There is, after all, a precedent here. Numerous reports on the implementation of various MiFID II regulations have highlighted a pervasive inconsistency. As mentioned in this previous eflow blog article, RTS 27 and RTS 28 Best Execution Reporting has been hindered greatly by poor quality data, resulting in inconsistent and sometimes inaccurate reports. [See here for information on eflow’s Best Execution Solution].

As well as this, other members of the financial services industry have expressed an inability to keep up with new regulations since MiFID II was first implemented. As discussed here, Mark Turner of Duff & Phelps is on record as making the following statement:

‘For advisers over the next one, two, three years I hope there will be a period of consolidation where they can make sure they really understand the impact of these regulations [Mifid and the Senior Managers and Certification Regime].’

Clearly then, there is a fair amount of consensus. It would seem likely that the EC’s report will highlight similar inconsistencies as those cited in these two examples.

eflow’s Approach to MiFID II Inducements Disclosures

While fully complying with the complex disclosure and reporting requirements put forward by MiFID II, it can be simplified. Our MiFID II Record Keeping and Regulatory Reporting solutions have been designed specifically to help in this area.

For more information on the solutions we have to offer, go to the ‘Solutions‘ section of our website, fill out the contact form below, or call us on +44 (0) 207 101 4493.

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