Banking and Financial, European MIFID 2 legislation in force since January 3, 2018 will cut the hidden costs in European financial services
The Mifid 2 legislation will cut costs hidden in European financial services, finally bringing absolute transparency into the world of savings. The new discipline will impact on financial companies, independent consultants and investors. Compared to the previous version of Mifid, important innovations are added in the protection of retail investors, in the definition of independent consulting services and in the adequacy of communication.
Mifid 2 regulations: no hidden costs in the bank
The Mifid 2 legislation was adopted by the European Parliament on 15 April 2014. It was to enter into force as early as July 2016, then January 3, 2017 but then its application was postponed for one year until January 3, 2018. The legislation provides for direct sales of financial products based on the final customer. What does it mean? Products must be designed and circumscribed in relation to a specific target for needs, risk disposition, skills and financial skills. And the distribution channel must act accordingly.
Mifid 2 thus restricts the field of products for which it is possible to provide an “execution only” service (that is, mere execution of orders), without assessing the adequacy of the transaction.
The legislation contains a list of free and other more restricted products and the rules will become even more stringent since 2018.
Skills and incentives
A key point of the Mifid 2 legislation concerns staff. Financial companies must demonstrate to the supervisory authorities that they have personnel with appropriate skills and knowledge of the products offered. In addition, incentives and remuneration mechanisms that could encourage operators to recommend certain financial instruments rather than those that best meet their needs will no longer be granted. of customers.
Customer protection
National and supranational supervisors may prohibit or restrict the sale and placement of certain financial instruments that could expose investors to excessive risks. As far as communication is concerned, the company that advises or manages the portfolio must not only provide the correct information, but also collect those that concern the customers. You will have to understand how much the investor knows about the product. How willing it is to risk, what are its objectives and how much it would be able to amortize a possible loss.
Hidden costs
Another important aspect is cost transparency. The costs must be reported to the client (including consultancy price) in an aggregate way: an overall measure that makes the amount of charges borne by the investor more immediate and clear (and their weight on the expected return). When possible, this information must be updated and communicated once a year.
Source Business People
