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FSA UK

Markets in Financial Instruments Directive

http://www.fsa.gov.uk/Pages/About/What/International/EU/fsap/mifid/index.shtml

 

 

EU warns members to enact MiFID law on time

 

 

The European Commission this week issued a warning to member states that failure to implement the Markets in Financial Instruments Directive (MiFID) in time would lead to immediate sanctions.

 

The Directive has been developed as part of the European Commission’s Financial Services Action Plan and companies must have implemented the rules by November 2007.

 

There have been concerns over potential delays for months, as well as worries that MiFID may be implemented differently across various member states.

 

“Consistent implementation is key. Several regulators, however, have been silent about their intentions,” says Charles Ilako, lead partner in the global financial services regulatory practice of Price Waterhouse Coopers.

 

On Tuesday this week, Charlie McCreevy, EU internal market commissioner said: “I am very concerned that some member states have stated publicly that they will not be able to transpose MiFID on time. This is very disappointing – particularly since we have repeatedly advised them to begin the transposition process early.”

 

He continued: “The Commission will launch immediate infringement procedures against any member state which fails to transpose on time. There will be no exceptions.”

 

As reported in last month’s Portfolio International, MiFID is designed to replace the Investment Services Directive (ISD). It extends the coverage of the current ISD and introduces new and more extensive requirements to which firms and investment intermediaries will have to adapt, in particular in relation to their conduct of business and organisational systems and controls.

 

13th October 2006

 

Markets in Financial Instruments Directive

http://www.fsa.gov.uk/Pages/About/What/International/EU/fsap/mifid/index.shtml

 

 

EU warns members to enact MiFID law on time

 

 

The European Commission this week issued a warning to member states that failure to implement the Markets in Financial Instruments Directive (MiFID) in time would lead to immediate sanctions.

 

The Directive has been developed as part of the European Commission’s Financial Services Action Plan and companies must have implemented the rules by November 2007.

 

There have been concerns over potential delays for months, as well as worries that MiFID may be implemented differently across various member states.

 

“Consistent implementation is key. Several regulators, however, have been silent about their intentions,” says Charles Ilako, lead partner in the global financial services regulatory practice of Price Waterhouse Coopers.

 

On Tuesday this week, Charlie McCreevy, EU internal market commissioner said: “I am very concerned that some member states have stated publicly that they will not be able to transpose MiFID on time. This is very disappointing – particularly since we have repeatedly advised them to begin the transposition process early.”

 

He continued: “The Commission will launch immediate infringement procedures against any member state which fails to transpose on time. There will be no exceptions.”

 

As reported in last month’s Portfolio International, MiFID is designed to replace the Investment Services Directive (ISD). It extends the coverage of the current ISD and introduces new and more extensive requirements to which firms and investment intermediaries will have to adapt, in particular in relation to their conduct of business and organisational systems and controls.

 

13th October 2006

 

FSA announces further crackdown on equity release advice

11th January 2006
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The FSA is to launch a further crackdown on individuals advising consumers about lifetime mortgages.

Hot on the heels of Which’s damning report on equity release, which claimed the vehicle should only be used as a last resort, the regulator said it planned to embark on a further round of mystery shopping.

The mystery shopping exercise should take place during the spring of 2006.
Robin Gordon-Walker, press officer of the FSA, said the watchdog would be visiting companies to discuss their approach to conducting equity release business and to carry out client file reviews to assess suitability.

The latest crackdown came as the regulator agreed to a concession on the way in which client money rules were applied to procuration fee monies, which companies rebate to a client. 

The new arrangement will remain in place until the FSA finds a longer-term solution and will affect all mortgage intermediaries who offer a purely fee-based remuneration option.

Chris Cummings, director general of the Association of Mortgage Intermediaries (AMI), said advisers should be aware that the arrangements proposed in the Markets in Financial Instruments Directive (MiFID) would mean any company indebted to its clients would be subject to client money rules. 

Mr Cummings said: “It is pleasing that the FSA has taken this stance on client money. As written, the rules did not account for arrangements in the mortgage industry and it is right that brokers can now benefit from this concession.”

 
FROM
THE FINANCIAL SERVICES AUTHORITY LONDON
24 May 2005

The Financial Services Authority (FSA) has warned advisers it must address the regulator's serious concerns about the suitability of advice being given to consumers on equity release schemes and follow-on investments after it completed initial work into this area. The FSA has not ruled out the use of its enforcement powers following the results of this work.

The FSA had identified lifetime mortgages as a priority ahead of becoming responsible for mortgage regulation on 31 October last year, and carried out an exercise involving 42 mystery shops – including product providers, Independent Financial Advisers and mortgage brokers – to assess advice standards within the lifetime mortgage market. A second piece of work, involving visits to firms and desk-based research, looked closely at subsequent investment advice provided to customers of seven firms that are active in this market.

The results of mystery shopping revealed that more than 70 per cent1 of advisers in these firms did not gather enough relevant information about their customers to assess their suitability for the product, and more than 60 per cent of the mystery shoppers reported that their adviser had not explained the downsides of equity release.

The FSA is also concerned about the findings of the review of subsequent investment advice where, in all of the seven firms looked at, advisers failed to explain the link between this type of borrowing and subsequent investments. The FSA is concerned that advisers are recommending consumers to borrow to invest without properly explaining the implications of this. The investment advice given fits into three key areas:
  • Investing for growth: the FSA identified that, in some firms, advisers are encouraging customers to release more than they require and reinvest the surplus cash in products such as investment bonds.
  • Investing for income: There are equity release products on the market that allow the consumer to draw down an income from their lifetime mortgage. Instead of recommending this route, advisers are recommending that consumers release a lump sum and reinvest it in, for example, an investment bond and take 5% withdrawals to provide a regular income stream. As well as being more expensive for the consumer, reinvesting capital in equity-backed investments unnecessarily exposes the consumer to risk2.
  • Inheritance tax (IHT) mitigation: Using equity release for IHT mitigation is a very finely balanced arrangement. A number of the cases the FSA reviewed were likely to leave the customer's estate worse off than if they had not taken any action to mitigate their IHT liability.

In many cases reviewed, customers were zero-rate tax payers and did not have any existing investments, and the FSA is not satisfied that recommending a complicated strategy was suitable for these consumers.

Clive Briault, Managing Director of Retail Markets at the FSA, said:

"Our work has found another disappointing instance of many advisers giving poor quality advice. For example, some people releasing equity from their homes are being advised to borrow more than they need, and to invest these additional funds, which can be a high risk strategy. What makes matters worse is that these consumers tend to be elderly and vulnerable people who can ill-afford to be unnecessarily exposed to risk.

It is extremely important that advisers ensure that anyone considering releasing equity from their property understands what is involved and can make a decision that suits their circumstances.

We will be carrying out further work in this area and we expect senior management to ensure that their advisers are giving appropriate advice, and to deal with any concerns that we identify. It is our aim to help retail consumers to achieve a fair deal, and the financial advice market should provide good quality, suitable advice to consumers."

The FSA will distribute 120,000 leaflets entitled 'Thinking of raising money from your home?' to GP surgeries, libraries, Citizens Advice Bureaux, and other not-for-profit agencies across the UK. A free factsheet providing more detail for consumers is also available by calling the FSA leaflet line on 0845 456 1555 or by visiting the Costa Del Sol Action Group web pages.


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