European capital market reforms crystalising in the UK are being greeted with a mixture of praise for the regulator and a warning of additional complexity for fund distribution.
The warning came from Six Financial Information and centred on the product governance requirements. The praise came from the UK’s pension fund trade body, PLSA, for listening to concerns about how local government pension schemes would be treated.
The Financial Conduct Authority (FCA) yesterday released its second policy statement on the implementation of the updated Markets in Financial Instruments Directive, known as MiFID II.
Phil Lynch, head of markets, products, and strategy at Six Financial Information, said the final guidance from the FCA suggested that the UK regulator may “yet add further nuances” to the MiFID II rules, increasing the level of national variations in Europe and creating more complexity.
“Take the ‘target market’ assessment of product governance – which is the beating heart of investor protection. The complex/non-complex classification product governance rules are already challenging under the minimum Esma [European Securities and Markets Authority] requirements.
“To carry this out in-country, with all the different nuances, takes this challenge to another level entirely for financial firms in terms of needing to consider classifications at even further levels of granularity.”
He emphasised the need for the funds industry to find a way to develop standardised approaches that can be “shared, automated, and scaled to a higher degree”.
Meanwhile, UK local authority pension schemes will welcome the regulator’s u-turn on classifying them as retail investors.
Joe Dabrowski, head of governance and investment at PLSA, said the publication of the final MiFID II rules and guidance showed that the FCA had “listened to the industry’s concerns”.
The £217 billion (€247 billion) local government pension scheme sector was concerned that the original consultation proposed to classify local authority pension funds as retail investors, which would have put constraints on how these schemes “delivered value to their 5.3 million members” and how they might continue to invest in infrastructure projects.
“However, the FCA has listened to the industry’s concerns and taken steps to allow them to ‘opt up’ more easily,” said Dabrowski
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