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APCIMS ready for MiFID
30 October 2007
Over the past two years, APCIMS has been working closely with its
member firms to support their understanding and implementation of
Markets in Financial Instruments Directive (MiFID), which comes
into effect on 1st November 2007. MiFID replaces the existing Investment
Services Directive (ISD), a set of high level provisions governing
organisational and conduct of business requirements for UK firms,
which also intended to harmonise the conditions governing the operation
of regulated markets. Now that MiFID is upon us, what are the important
factors for private wealth managers and brokers, and their clients?
Why introduce MiFID?
The purpose of MiFID is to put in place a single market and regulatory
regime for investment services across all EU member states. It has
three major objectives:
- To create a single EU market for investment services;
- To reflect developments in financial services and markets since
the ISD was implemented;
- To protect investors by making markets deeper, more competitive
and more robust against fraud and abuse.
The implementation of MiFID brings a wider range of core investment
services that firms can "passport" (offer to investors
in different EU member states). It builds upon the harmonisation
measures introduced by the ISD, by providing more detailed requirements
for firms and regulated markets.
What does MiFiD mean to private client brokers and wealth managers?
David Bennett, APCIMS Chief Executive comments: "For most
APCIMS members, MiFID has involved a great deal of cost, in terms
of the time and effort expended on detailed analysis of the Directive
and the FSA's implementation of it, and then specifying the systems,
controls and procedural changes required to accommodate it. At this
early stage, it is difficult to identify any significant benefits
for our firms. However, it is likely that over time, in the context
of the EU market place, MiFID will lay the foundations to enable
UK brokers and wealth managers to seriously consider the practicality
of entering other European markets."
What effect will MiFID have on the private investor?
Private investors will see very little change in the process of
buying and selling shares as a result of MiFID. There are some changes
to the paperwork clients receive from their broker, which may include
the following:
- Prior express consent - for off-market transactions (those not
traded on a regulated market or similar facility in the EU) firms
must obtain the clients consent in advance of trading.
- Small changes to contract notes, including details of the trade
execution venue.
- Notification of execution policy - firms must advise their clients
of the full range of execution "venues" (which can be
different markets, such as PLUS or Chi-X, or Retail Service Providers)
they will select from when executing the client's trade, and must
explain why they have chosen those venues.
- Complex instruments dealt on an execution only basis. Until
now, brokers have received and processed execution only transactions
without confirming the client's level of knowledge or understanding
of the financial instrument being traded. Under MiFID, if the
client has not traded in a "complex" instrument (such
as Warrants, CFDs, Futures and Options) before, the broker must
ensure the client has sufficient knowledge of that instrument
and its behaviour before executing the trade (the "appropriateness"
test"). For advisory and discretionary clients there continues
to be a requirement to assess the suitability of any recommendation
and transaction.
And what's next?
David Bennett comments: "In recent years, APCIMS members have
been focused on getting to grips with and implementing a whole raft
of regulatory changes, from CRD through MiFID, to the Anti Money
Laundering changes, which implement in December 2007. Our firms,
in common with the rest of the industry, would welcome a break in
the seemingly relentless schedule of regulatory change. They need
the opportunity to operate under MiFID in a live environment, to
determine where there may be competitive advantages and opportunities
to broaden the range of services offered to clients, both in the
UK, and potentially across the other EU member states."
Ends
Notes to the editor:
APCIMS
APCIMS, the Association of Private Client Investment Managers and
Stockbrokers, represents the interests of the vast majority of private
client stockbrokers and wealth managers in the UK, and through them
more than 10 million individual shareholders.
For further information please call:
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David Bennett, Chief Executive, APCIMS
Office: 020 7247 7080;
Mobile: 077689 50041; Email:davidb@apcims.co.uk
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