The FCA has published its key findings from a 2015 thematic review about benefits provided and received by firms conducting MiFID business, and those carrying out regulated activities in relation to a retail investment product. The FCA is not publishing a thematic report as the thematic review will be taken into account in the FCA’s planned MiFID II consultation paper. However, given that the European Parliament has confirmed the delay in implementing MiFID II to 3 January 2018 it has published key findings from the review to remind firms of its expectations around current rules.
A summary of the FCA’s findings and expectations are as follows:
- hospitality provided or received did not always appear to be designed to enhance the quality of service to the client. The FCA’s expectation is that when providing or receiving a non-monetary benefit it expects firms to consider and assess whether all aspects of the benefit are designed to enhance the quality of the service to the client including the location and nature of the venue, and those activities which are not conducive or required for business discussions, e.g. sporting and social events and activities;
- hospitality that is not designed to enhance the quality of service to clients is offered in connection with other benefits that do meet the requirements. Where an activity or event provides a number of non-monetary benefits, the FCA expects that the firm must consider each benefit separately. Just because one benefit provided by the firm is designed to enhance the quality of service to a client and is capable of being paid or received without breaching the client’s best interest rule does not mean that another benefit (that does not meet these requirements) can be included in or alongside the compliant activity or event;
- hospitality logs did not always record relevant detail or were not well maintained. The FCA expects that sufficient detail should be recorded to ensure effective monitoring and compliance;
- advisory firms incur costs when facilitating training or educational material supplied by product providers. The FCA expects that providers may make payments to advisory firms to cover these costs, but these payments should only cover the costs incurred, and should not also include a profit for the advisory firm. Payments in excess of the costs incurred are likely to be an inducement and are not allowed; and
- MiFID firms were not providing clients with an indication of the value of allowable benefits provided. The FCA expects that when disclosing a summary of the allowable benefits provided, MiFID firms must ensure clients are given an indication of the value of those benefits in order for the client to be aware of the possible level of inducements. Clients may then decide whether to go ahead with the investment or seek more detailed information.
View Inducements and conflicts of interest thematic review: key findings, 18 April 2016