Don't forget about LinkedIn, Facebook or texts when it comes to Mifid II.
There are now only three working weeks until Europe’s banks, brokers, asset managers and the wider financial advisory community have to implement the much-vaunted Mifid II directive.
The current Mifid II regulations date back to 2004, but are being revised to improve the functioning of financial markets following the financial crisis of a decade ago, while further strengthening investor protection.
Mifid II brings a whole plethora of changes to bear for financial firms and advisers, which will force investment services providers to significantly change their organisational and compliance policies and procedures.
But Mifid II is not being implemented in a vacuum and as companies and advisers get to grip with the changes, they should be aware of the ever-widening risk perimeters, particularly as a result of the explosion in the scope of communications requiring proactive supervision.
Do IFAs need to be compliant?
Many IFAs may think – or hope – that Mifid II will not affect firms that are purely UK businesses with a client base also solely in the UK. According to a study undertaken last year by Investec Wealth & Investment, more than one-fifth of advisers believe Mifid II will have little effect on their firms.
However, we do not think this is the case. Any firm that meets the Mifid II definition of 'investment firm' must comply with all Mifid (and Mifid II) requirements, even if it operates on a purely domestic basis. Many IFAs in the UK, though, are currently what is known as 'exempt' firms.
This is, essentially, a status available to firms that carry out only a limited range of Mifid II activities. It enables them to choose whether to be treated as an investment firm or not.
But being an article 3 firm and choosing to be exempt from Mifid II is not an automatic path to rule-free business. Mifid II includes a requirement that member states must treat such firms as equals to those that fall squarely under Mifid II.
So the FCA is bound to apply rules that are least analogous to the relevant Mifid II requirements in many cases. How to prepare for these requirements is clearly a concern among the IFA community.
Some 73 per cent of financial advisers did not feel there was enough clarity on Mifid II to adequately prepare their business for the new rules according to a survey undertaken by discretionary fund manager Smith & Williamson earlier this year.
So what will change?
In short, Mifid II has the potential to impact all areas of an adviser firm, including organisation and senior management, compliance, staff compensation, charges to clients and product development and distribution.
