Liberté! Egalité! Regulatory! Liberté! Egalité! Regulatory!

19 Jul 2017

Liz Coyle, Compliance Policy Manager, The SimplyBiz Group

With MiFIID II, GDPR and IDD on the horizon, will UK firms be facing a REXIT (regulatory exit) or opening borders to EU legislation?

Over the past twelve months it would be fair to say the UK has been through a rocky patch in its relationship with Europe.  We’ve both been through tumultuous times domestically, with elections held in Holland, France, Germany and the UK since the start of 2017 and our relationship was irrevocably altered when the United Kingdom voted to leave the EU in last June’s referendum. 

Theresa May’s triggering of Article 50 on the 29th of March was the start of our formal ‘divorce’ from the EU, however, the result of the recent General Election has cast a shadow of doubt over whether the UK’s approach will be for a ‘hard’ or ‘soft’ Brexit when we eventually reach the negotiating table. 

The FCA currently has no more insight than the rest of us about what the long-term, post-Brexit, future will bring and the effect it may have upon UK financial services firm.  Until more details are available, it has released a holding statement which simply says: “Firms will need to assess the impact that a changed relationship with Europe and any changes to the regulatory regime have on their business models.”  The Brexit negotiations will take years to complete and I am sure that, as more information about the potential ramifications for UK advisers transpire, the regulator will keep us updated.  Until then, it’s worth summarising what we do know will be happening to UK regulation over the next few years as a result of changes to EU legislation. 

Firstly, the piece of legislation which will have the widest impact on UK advisers – MiFIID II.    Coming into play from the 3rd of January 2018, the scope of MiFIID II is broad and covers not only the internal operations of a firm but also aspects of the advice process and interaction with third parties.  Some of the hottest topics covered by this review are;

  • Assessing suitability – following a thematic review last year, disclosure is firmly in the regulator’s sights currently, with a particular focus on the clarity of adviser charging structures and timescales in suitability reports.  Methods of charging which look set to come under the most scrutiny include ongoing services agreements, open ended initial charges, hourly rates and tiered charging structures.  A big change of which we’re already aware is that suitability reports will now need to be issued whether or not a transaction has been made; advising a client to take no action will now be classed as giving advice and the relevant information issued to clients. 
  • Structured deposits – in order to maintain independent status, structured deposits will need to be considered during the advice process, which means advisers who don’t currently hold the relevant permissions for this market will need to apply to the FCA for a variation.  If your application is made before the 3rd of January next year there will be no cost for the change – if the application is made after that date, there will be a charge.
  • Definition of independence – it sometimes feels unlikely that even Thomas Jefferson and his ‘Committee of Five’ spent as long debating the meaning of independence back in 1776 than the financial services sector has over the past few years!  However, MiFIID II will be delivering yet another definition, and one which may be preferable to many of you who don’t feel comfortable operating on the very niche edges of the investment spectrum.  Instead of the current requirement to deliver a ‘comprehensive analysis’ of the market as part of your advice process, you will instead need to deliver a review which is ‘sufficiently diverse’.  Although this sounds as though it might mean a relaxation of the need to consider the entirety of the market for each client, we still need to discover how it will relate to actual black and white guidance.  In addition, there will be a number of investments classed as retail investments under MiFIID II which are not currently, such as shares, bonds, derivatives and, as mentioned above, structured products.  Although we’re yet to see any definition of independence have a measurable impact on consumer perception, at least this change may have a positive outcome for the streamlining of the advice process of independent advisers.

Something encouraging that we have seen with regard to the translation of MiFIID II legislation into UK is that the FCA has not been afraid to exercise common-sense when some of regulation doesn’t work for UK markets.  For example, up until quite recently, it seemed likely that call recording was going to be introduced, as part up in the MiFIID II legislation. A survey that we conducted amongst our Member and Client Firms, along with feedback we received at events, told us that this was something about which advisers were very strongly against, and we submitted a response to the FCA representing those views.  We were therefore delighted when the regulator announced it was not going to introduce call recording as a requirement for UK advisers, and instead would accept written notes as a substitute from non-MiFIID firms. 

Which brings me to my final point on MiFIID II – how do you know if you are a MiFIID firm, and therefore bound to all of the European regulation?  MiFIID firms have those permissions if they’ve passported any business into Europe and, if you’re not sure, then the quickest way to find out is through the FCA register.  Another indicator is that you will have been asked to complete four, rather than the usual two, GABRIEL submissions per year.  If you are currently a MiFIID firm, but no longer need to be, I would encourage you to change your permissions as soon as possible.  There may be a charge from the FCA to process the change, but I believe it will be more than worth it in the long-run. 

Although MifIID II is the biggest hitter approaching from Europe at the moment, there are a number of other reviews headed our way over the next few years that will also have an effect, although maybe a lesser one.  These include:

  • The fourth anti money-laundering directive – in place from the 26th of June this year, the new anti money-laundering directive brings new procedures into place surrounding CDDs, politically exposed persons and operating a risk based approach to money laundering queries.
  • General Data Protection Regulation – the GDPR will be implemented across Europe from May 2018 and will affect all businesses, working in every sector. 
  • Packaged Retail and Insurance-based Investment Products (PRIIPs) – again focussing on disclosure, PRIIPs will be in place from the 1st of January 2018 and will involve firms who advice on these products putting a new Key Information Document process in place.

For more information, please don’t hesitate to get in contact at or on 01484 439120.  


“Extremely satisfied with SimplyBiz Services”

Kevin Hopwood
Hopwood Ash Ltd

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