Industry body Tisa has published a MiFID II guide to help investment firms avoid selling inappropriate products.
The guide may help in reducing mis-selling risk, which some see as a possibility for product providers under the Markets in Financial Instruments Directive II, or MiFID II as it is known.
The directive contains an ‘appropriateness assessment’ to prevent inexperienced customers investing in complex products, which Tisa lists as investment trusts, non-Ucits retail schemes (Nurs) and regulated alternative investment funds, or “Aifs”. Nurs, for example, are allowed to invest in a wider choice of assets than Ucits-regulated funds and have less stringent rules about portfolio concentration.
All Ucits funds will be considered non-complex and therefore not subject to the test.
Tisa’s guide – which is called ‘MiFID II – Appropriateness Approach to Implementation’ – recommends that complex products should be assessed on a case-by-case basis.
Jeffrey Mushens, technical policy director at Tisa, said the number of firms that have to perform appropriateness tests will increase when MiFID II is implemented on January 3, 2018.
“The directive makes it clear that there is a responsibility on the product manufacturer and the distributor to ensure that complex products are appropriate for customers buying without advice.”
He added: “If the investor fails the appropriateness test, they still may be allowed to buy the product, but a warning will be given saying that it may not be appropriate. The directive increases expectations on existing systems and controls.”
Mis-selling was a subject touched on at a recent Funds Europe MiFID II roundtable.
The appropriateness guide is the first of a series of MiFID II guides that Tisa intends to publish and can be found here.
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