Painful - that is how Elizabeth Budd, a partner at Pinsent Masons has described the process for firms incorporating Mifid II into their business.
Ms Budd says: “It has been an uphill struggle for many people to implement a set of rules into existing processes which were established without a set of rules in mind, unless you are going to completely restructure your business. Eventually it will become business as usual but we are some way off that.”
According to a recent survey carried out for financial technology business Iress, more than half (58 per cent) of the advisers surveyed were not yet aware of the Prod rules.
Adviser confidence
Some 70 per cent are unsure if they are able to evidence the suitability of products and services by client segment, while only 5 per cent say they are aware of the obligations under new Prod rules.
And only one third (33 per cent) are using their back office technology to help them segment clients.
Mark Loosmore, executive general manager (wealth) at Iress, says: “The new rules in (product governance) Prod have caught many people in the industry unaware. There seems to be widespread confusion and concern around the steps advisers should be taking to ensure client suitability processes are evidenced appropriately. There are a few things advisers must do. They need to evidence they understand the financial instruments they advise on, assess client compatibility with products and services and ensure client best interests.
“While this might sound like an onerous task, it seems only one-third of the advisers we surveyed realise the tools they need to help them comply with Prod rules are probably at their fingertips.
"Those advisers with integrated, data rich, back office technology systems should be able to run segmentation reports fairly painlessly, and save those reports to their compliance folders to evidence the suitability of the products and services advised on by client segment.”
Perhaps more worrying is the 80 per cent of advisers surveyed who were not aware of the enforcement actions the Financial Conduct Authority (FCA) could take if they found advisers falling short of the new rules.
Challenging areas
The areas that have caused challenges for firms, from what Ms Budd has seen, include transaction reporting and understanding the correct reporting processes that have to be followed.
According to Tobin Ashby, another partner at Pinsent Masons, other areas that firms have struggled with are: the product governance and the relationship between the manufacturer of an investment product and a distributor, and the information or disclosure requirements that both have; and the requirement to assess who the product is the suitable target market for.
Mr Ashby says: “There have been a lot of challenges on both of those, in terms of identifying what information is needed to comply with their own obligations, how to obtain that information, who should be providing which information, and how much information the manufacturers need to provide to distributors to enable the distributors to do what they need to do.
