MiFID II aims to enhance the protection levels granted to different categories of clients. Much of the detail of the provisions, as is currently the case, will be provided in 'Level 2' implementing measures.
The existing legislation places restrictions on payments that firms providing services to clients can receive or make in relation to the provision of the service. MiFID II goes further in prohibiting firms that provide independent advice or portfolio management from receiving and retaining payments from third parties.
As under the existing legislation, countries will be able to impose, in limited circumstances, requirements that go beyond those in MiFID. As part of this existing notifications of additional measures, such as those the UK has made in relation to the Retail Distribution Review (RDR), can be carried forward when the revised legislation takes effect.
Under the current directive firms can only allow clients to buy and sell a certain range of products on an execution-only basis. The revised legislation is narrowing the list of execution-only products, in particular structured UCITS will no longer be able to be sold on an execution-only basis. Structured deposits – which are newly being brought into MiFID – will also be affected; no longer being allowed to be sold on an execution-only basis if, for example, it is difficult to understand the cost of exiting before term.
Additional information will need to be provided in relation to best execution. Brokers will need to provide details of the main 5 execution venues for each of the main categories of financial instruments they provide services in relation to.
We would expect to maintain the current RDR restrictions on payments to all investment advisers. The main impact of the new restrictions on inducements is therefore likely to be on portfolio managers, who are not currently subject to the RDR unless they offer advisory services.
Firms offering execution-only services will need to review their offerings in the light of the changed list of products that can be sold on an execution-only basis. Brokers will also need to develop the systems to publish information on the execution venues they use.