EU agrees investor protection measures under MiFID II

European flagsThe EU has moved closer to banning inducements that funds pay to independent financial advisers after reaching an agreement over the proposed changes to the Markets in

Financial Instruments Directive (MiFID) this week.

The agreement also means that investment firms outside of the EU but with EU branches will be able to benefit from a MiFID passport if their own regulator’s rules are considered to be equivalent.

Negotiators for the European Parliament and the Council of Ministers made an informal agreement over a wide range of changes to regulation for participants in Europe’s financial markets on Tuesday night.

The rules are designed to close the “loopholes in the existing legislation, ensuring that financial markets are safer as well as more efficient, investors are better protected, speculative commodity trading is curbed and high-frequency trading is regulated”, an EU statement says.

MiFID II covers an array of market operators, including banks and exchanges.

Further changes for the fund management industry include a requirement to design investment products for specified groups of clients according to their needs. They will also have to withdraw “toxic” products from trading and ensure that any marketing information is clearly identifiable as such and not misleading.

Clients of financial advisers should also be informed whether the advice offered is independent or not and about the risks associated with proposed investment products and strategies.

Laura Cox, PwC financial services partner, says: “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.”

Although reaching an agreement has taken a long time, this is only the start of the process for firms, Cox adds. Political agreement on the high level principles enables the European Securities and Markets Authority to begin consultation on the detailed MiFID II requirements.

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