Yesterday marked the first day of trade under a new set of financial regulations - the biggest change in more than a decade. The introduction of the second Markets in Financial Instruments Directive - or MiFiD II for short - has been in train for almost four years and marks one of the last major changes to stem from the 2008 financial crash. So what do the changes aim to achieve and what does it mean for consumers?
Maeve Kelly, compliance manager with Cantor Fitzgerald, said the over-riding aim of the new rules set is around transparency. "MiFiD I came in back in 2007 so it's there ten years - what MiFiD II is trying to do is build on what's already in place," she said. "It's seeking to increase market transparency, enhance consumer protection and ultimately ensure that the consumer is treated fairly."
What that means in practise is that the client is clearer on what is being done, while regulators have a clearer picture of what companies are doing on their behalf. One of the main ways in which this will become apparent to consumers is in the way a company displays its pricing from now on. "It's very clear on what a consumer is paying for an investment product now," Maeve Kelly said. "Everything is aggregated into one figure so it's clear from them and they can see how that is going to affect the overall performance of their investment."
What may be less apparent to consumers - but no less important - is the extra work that is now required to ensure that brokers and traders are doing the best they can on their behalf. This includes an enhanced obligation to ensure a product is the right fit for an individual customer - which will take things like their age and income into account.
Firms will also have to ensure 'best execution' - which means that their staff are making decisions in the best interests of their clients. Ms Kelly said there was already a need for these kinds of practices - but MiFiD II pushes firms to show this more clearly than before. "We're all doing that anyway - it was there under MiFiD I - but again, there's more obligations on the firm to produce evidence of that," Ms Kelly said. "So much so, each and every time that an investment firm provides a retail client with investment advice they now need to issue a report to the client outlining what that advice contains and why they believe it's suitable for the client."
After years of notice and planning these new rules came into effect yesterday, and according to Ms Kelly they were adopted with relative ease. "A huge amount of preparation has gone into this in the last 12 to 18 months," she said. "Cantor Fitzgerald is part of a global group and we were able to work with our offices in London and we were able to work with them which helped us a lot."
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