A new European Union financial directive will not ban commission for IFAs – but UK regulators will carry on with plans to scrap payments to advisers from financial firms.
Despite a rear guard action from a group of UK members of the European Parliament (MEPs), the Markets in Financial Instruments Directive (Mifid) failed to garner any support for the commission ban.
In a vote, 495 out of 529 MEPs supported the Mifid wording.
Instead of a ban, Mifid demands increased transparency and disclosure of payments to distributors by product providers.
The UK Financial Services Authority (FSA) is relaxed over the vote, as EU rules let individual nations go “above and beyond” the minimum standards agreed in the directive.
No conflict with EU, says FSA
“Europe has been well briefed on our stance and we do not expect any conflict,” said an FSA spokesman.
However, some groups in the UK are still disgruntled at the result.
The Investment Management Association (IMA) has fears funds based in the UK face a commission ban, while competitor in the EU may not.
“The European Parliamentary Committee has agreed as part of the Mifid review that rebates directly to consumers are acceptable,” said the IMA. “If the UK persists with its proposal to ban cash rebates to investors in funds, then it is not certain that it can ban cash rebates to investors from non-UK Ucits.
“This raises a serious concern about UK competitiveness and might leave the UK open to legal challenge.”
Consumer protection blow
Arlene McCarthy, Labour MEP for the north west and vice-chair of the EU’s Economic and Monetary Affairs Committee, argued improved disclosure “does not work” and claimed the Mifid vote was “a blow to consumer protection”.
“The evidence is clear that consumers do not trust the independence of the advice if inducements are paid to push a product. A ban is the only way to remove this conflict of interest and give strong protection to the investor,” she said.
“It would be cynical if the Conservatives were to use the loophole in EU law to undermine the high level of protection we have secured for the UK consumer in the sale of retail investment products.”
The next move for Mifid is to merge the European Parliament’s draft with revisions proposed by the European Council – the document will then go for final approval with a view to come in to force next year.