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Slow adoption and unintended consequence of MiFID II

30 April 2019

Advisers are slow to adapt to changing regulation, a new report from FE has shown. 

The report Walking on Shifting Sands – how advisers are negotiating a changing landscape, found that only 25% of advisers felt the introduction of MiFID II had improved their business processes. In contrast, nearly a third (32%) reported that it had worsened them, while 43% said the rules had made little or no difference.

Mikkel Bates, regulatory manager at FE, said: “It is concerning that almost half of the advisers surveyed may not be following the MiFID II disclosure rules as diligently and rapidly as they should. However, some may be simply relying on others, such as platforms, to deliver the reports rather than struggling with the intricacies of the new disclosure requirements.”

Bates said the report highlighted “one of the many unintended consequences of MiFID II” – that due to ambiguity, advisers may interpret and action the rules differently.

He continued: “I’d expect to see the number reporting changes to their business processes to increase significantly over the next two years, as a consensus about how to interpret and apply the rules emerges.”

Advisers were split down the middle as to whether MiFID II had provided greater transparency and protection to clients, but 63% found that in general, it offered little benefit to clients. Of the third who reported that the rules had worsened business processes, 70% said it had failed to provide better transparency and protection for clients.

Bates added: “Last year saw one of the most active years by regulators, with the introduction of MiFID II, PRIIPS and GDPR to name a few. These findings highlight a sense that advisers are suffering from regulatory fatigue and begrudge the new rules as they impact their businesses processes, often with little perceived benefit for clients. This feeling will undoubtedly be contributing to the slow uptake of the new rules.

“Adapting to change is a gradual process and initiatives such as MiFID II create challenges that any business would struggle to adapt to rapidly. The findings highlight that the adviser industry may not adapt to new regulatory regimes as quickly as it would like but the intention and direction of travel is there and evidenced.”

Despite their reluctance to adapt to new rules immediately, the report found advisers’ overall sentiment for business outlook over the next 12 months was overwhelmingly positive, with just 13% taking a negative stance. In addition, three quarters of advisers said pensions freedoms had been a major driver of profitability for advisers, while ethical investments were also on the rise with just 10% showing no interest in offering such solutions to clients.

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