Mifid: new UK notifications as Mifid deadline approaches

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LONDON – The UK Financial Services Authority (FSA) is one of the few national regulators in the EU on target to implement the Markets in Financial Instruments Directive (Mifid), but it is still engaged in ironing out some last-minute wrinkles.

Article 4 of the Mifid Level 2 Implementing Directive limits the ability of EU member states to apply additional requirements to some of the areas covered by Mifid, prescribing conditions for creating or retaining additional national requirements and requiring national notification and justification of these for the Commission’s approval.

The FSA’s policy statement of July 2007 reported an agreement with the Commission regarding retaining measures covered by Article 4. These included conditions for independent advisers, provision of simplified prospectuses and key facts documents by advisers, the Commission’s disclosure in relation to the sale of packaged products, and investment managers’ use of client-dealing commission.

The Commission has since indicated that it does not require notification of some of these measures under Article 4, as they fall under national discretion. As a precaution, the UK Treasury has forwarded two notifications to the Commission on behalf of the FSA. These are notification of the retention of the FSA’s requirements on the use of dealing commission provisions. “This represents a continuation of UK rules introduced about two years ago,” says Alan Jenkins, European head of Mifid at BearingPoint. They are also notification of the retention of certain requirements for the packaged products market. These new notifications replace those issued on January 31, 2007, which have been withdrawn.

The Treasury’s notification of the FSA’s retention of requirements for dealing commission provisions explains that, under soft commission and bundled brokerage arrangements, goods and services are supplied to a portfolio manager in return for business put through a broker. “The UK feels it needs stronger constraints on soft commission than are provided by the inducements provisions in Mifid,” says Jenkins. In January 2006 the FSA began using dealing commission provisions to address particular market failures of these arrangements that were not adequately addressed by its general provisions on inducements.

In the notification to the Commission for the retention of specific requirements for the UK packaged products market, the Treasury justifies the FSA’s requirements retained in some areas that may require notification under Article 4. These requirements relate to the accuracy of representations of the service offered, information on product and service costs (hard disclosure of commission and commission equivalent).

Alan Jenkins says the editions represent “marginal extensions to what is specified in Mifid, but the notification demonstrates the strength of FSA feeling that these should be maintained after November 1”. The notifications are broadly as previously proposed in January. “The key point is that they have been agreed with the Commission,” says Jenkins.

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