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MiFID II: Be careful what you wish for

On 3 September 2014, the Securities and Markets Stakeholder Group (SMSG) published four advices to ESMA on MiFID II:

Following the example of the vast majority of participants who provided comments to the ESMA Consultation Paper on MiFID II, the SMSG stresses the fact that the very short deadline to answer prevented them from going into much detail.  As a result, the advices on trading venues and transparency contain mostly high-level and general comments, unlikely to influence ESMA.

Nonetheless, the piece of advice on investor protection serves more substantial warnings.  In particular, instead of increasing the quality of advice by financial advisers, the rules might drastically reduce the availability of advice for the typical customer:

  • The restrictive approach regarding inducements for independent financial advisers might threaten the “open architecture” model in Continental Europe. In addition, ESMA should make clear that it does not intend to impose a de facto ban on inducements in the context of non-independent advice.
  • Should ESMA persist in this path, there is a risk of shrinkage of the availability of advice for retail investors who can’t afford to pay directly for advice. This has been noticed already in the UK due to implementation of a similar regime: the Retail Distribution Review (RDR)

Besides, the SMSG reminds that member states are likely to gold plate the rules of MiFID II. The uniform – single market is a legitimate aim, but the fact remains that each member state remains unique.  In addition, the SMSG makes clear that strong enforcement of regulation is just as important as the rules themselves. The absence of coherent national liability regimes to ensure enforcement of MiFID II is seen as a major shortcoming for effective implementation.

With a much wider scope than MiFID I, MiFID II calls for a major step up in the enforcement regime and corresponding resources.

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