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AFME: MiFID agreement is a major breakthrough but significant challenges remain
“This is one of the most important legislative reforms of Europe’s capital markets with the potential to enhance transparency, improve price formation, and increase fairness and confidence across a range of markets", comments Simon Lewis, Chief Executive of the Association for Financial Markets in Europe.
Significant challenges lie immediately ahead in terms of developing the regulatory detail necessary to make these primary provisions operational.
The Level 1 texts envisage nearly 90 separate secondary (Level 2) measures in areas such as the conditions for deferred post-trade transparency for non-equity instruments; the conditions whereby access could be denied or granted by a trading venue; and the data standards and formats related to information that consolidated tape providers publish.
“Key to reaching this point has been policymakers’ recognition of the need for careful calibration of transparency and market structure requirements that are sensitive to the liquidity of the instruments concerned and to the trading needs of investors", said Christian Krohn, a managing director at AFME. “As more detail is mapped out, it is important that the agreed policies are implemented in way that ensures their aims are fulfilled and unintended consequences for market users are minimised.”
Despite the political challenge, policymakers have broadly made key progress in areas such as non-equity transparency requirements, but in other areas, such as open access for CCPs and trading venues, more can be done to introduce much needed competition. Moreover, the double cap restrictions on the use of equities trading waivers will present significant operational challenges as Level 2 provisions are developed.
BVI (Bundesverband Investment and Asset Management) - Improvements in consumer protection but big gaps remain
With a view to consumer protection, the BVI is largely critical of the outcome of the negotiations. Whilst transparency is further increased in sales of investment products, no comparable rules apply for buyers of capital-building insurance. In the opinion of the BVI, this discrepancy is not in the interest of consumers, nor does it encourage fair competition.
Brokers dealing with financial products that fall under MiFID must in future disclose conflicts of interest as well as whether they are independent or working on commission basis. Customers who invest their money in insurance products are, however, not benefitting from comparable sales rules. The revision of the Insurance Mediation Directive is now the last chance to eliminate the discrepancy in consumer protection.
Press release (in German)
DK (Deutsche Kreditwirtschaft)
The German banking industry (DK) explicitly welcomes the decision of the EU legislator for the preservation of commission-based advice. In contrast, the DK is concerned that further documentation requirements will discourage customers from taking personal consultations.
The Directive provides for the introduction of Europe-wide voice recording, especially for consultations by telephone. Such a record restricts the possibility of personal advice and is rejected by the majority of customers. The DK warns that by over-regulation, securities customers would ultimately ask for less advice overall.
Press release (in German)
EFAMA
EFAMA is disappointed that insurance products have been omitted from the final agreement. And EFAMA believes that the failure to treat as equal all financial investment products means there will now be an absence of a level playing field.
EFAMA now urges the European Parliament and Council to immediately restart the stalled negotiations on the review of the Insurance Mediation Directive (IMD II) to ensure that end investors are ultimately afforded the same level of protection and transparency across the whole range of financial products.
Peter de Proft, Director General of EFAMA, commented: "While we applaud the EU for having concluded its widest reform of the European financial markets since 2007, we are disappointed that not all financial products have been treated equally. We believe that it is the best interests of the investor that the same rules apply across the board. We therefore call on European co-legislators to use IMD II to rectify this and ensure that moving forward there is a level playing field for all."
PwC
Laura Cox, PwC financial services partner, commented: “Although reaching agreement has taken a long time, this is only the start of the process for firms. Political agreement on the high level principles enables ESMA to begin consultation on the detailed MiFID II requirements.
“The European Parliament has confirmed that third country firms operating branches in the EU will be able to benefit from a MiFID passport if their home rules are considered equivalent to MiFID. This opens up new marketing possibilities for some EU branches. But it is not yet clear whether equivalence will be mandatory even for firms that do not wish to use a MiFID passport, or how firms from non-equivalent jurisdictions will be treated.
“The EU is coming more in line with the UK on investor protection measures, including a ban on inducements paid to independent financial advisors and an obligation to design investment products to meet the needs of specified groups of clients.
“A lot of the focus in recent months has been on a handful of contentious issues, but MiFID II includes enhanced governance and general operational requirements that have a much wider impact. MiFID II will affect all regulated firms in Europe so firms need to begin assessing the full operational impact of these changes now.”