MiFID II – the competence element


In May this year we at FSTP, shared the ESMA Consultation Paper “Draft guidelines for the assessment of knowledge and competence” (dated 23rd April 2015) with a number of clients.  Our guidance to those firms was to ensure that T&C requirements were added to their MiFID II project plan to ensure that it did not slip through the net.  The consultation itself was looking to close contributions on the 10th July 2015. Some of the comments received are interesting and do focus on a particular issue, namely;

  • How might this impact on any staff providing a generic “house” view i.e. possible investment assistants or support and /or research members who may be called into client meetings? Particularly for institutional investment houses

Generally speaking, after reviewing a cross section of responses most contributors recognised and highlighted that the requirements for those providing investment advice to clients should be more rigorous and robust than those providing “generic” advice, as you might expect.  However, the view of what is sufficient for those providing that generic advice was varied.

The specific question about grandfathering , proposing  “not less than five consecutive years of appropriate experience of providing the same relevant services at the date of application of these guidelines would be sufficient to meet the requirement under knowledge and competence, provided that the firm has assessed their knowledge and competence?” prompted some interesting responses, including;

“We see no necessity for the requirement that employees must have acquired the experience “in the same firm”. In our view, it should be relevant – as well as sufficient – for such experience to have been acquired in an investment firm subject to MiFID.”

”It should apply to people who have shown competence or/and gained experience in one of the designated functions for a much shorter period than 5 years. To impose 5 consecutive years of experience in the same firm and in the same type of function at the date of introduction of the new requirement reduces, to practically zero, the number of agents that would be eligible to the benefit of this provision.”

experience alone is not an appropriate or sufficient indicator of competence.

The CISI response was more expansive and cited the recent experiences of RDR implementation in part of its response;

“No, we think that five years of consecutive experience is not a sufficient indicator. Our judgement is based on the CISI’s experience of the UK’s Retail Distribution Review (RDR) which demonstrated that experience alone is not an appropriate or sufficient indicator of competence. Some advisers with more than 30 years’ experience failed to pass the necessary appropriate qualifications to meet the RDR professionalism requirements when the basic education requirements were upgraded.”

Interestingly, in response to the question about costs that may be incurred one of the trade bodies representing institutional wholesale investment groups estimated costs in excess of £500k for some firms.

What does this all mean?  Watch this space, the paper was concerning itself on the provision of quality advice, in whatever form it takes, to clients.  Without more guidance the response from firms could be, like the responses, very varied.


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