MIFID 2: Inducements

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1 MIFID 2: Inducements Carole Uzan Deputy Head of Markets Regulation Policy Division Autorité des Marchés Financiers QED 15 October 2015 MiFID Level 2 Workshops - Inducements & Best execution

2 MIFID 2 : Inducements Where did we come from? On the basis of MIFID 1, a strict regime on inducements was already set up by the AMF Where are we going? Presentation of the main provisions of MIFID 2 and of ESMA final technical advices Focus on the financial research When should it be regarded as an inducement? 2

3 Where did we come from? On the basis of MIFID 1, a strict regime on inducements was already set up by the AMF The obligation for an investment firm to act honestly, fairly and professionally in accordance with the best interests of its clients, implies in particular : Appropriate information on the costs and charges associated with the service provided Inducements are allowed under conditions : Ex ante disclosure to the clients of the existence, nature and amount(or the method of calculating it) Its payment shall enhance the quality ofthe service to the client and not impair compliance with the firm's duty to act inthe best interests ofthe client The AMF General Regulation and the AMF doctrine implement MIFID 1 provisions and has already anticipated certain aspects of MIFID 2 3

4 Where are we going? Presentation of the main provisions of MIFID 2 and of ESMA final technical advices MIFID 2 prohibits inducements for portfolio management and independent advice. Minor non-monetary benefits that are capable of enhancing the quality of service provided to a client, and are of a scale and nature such that they could not be judged to impair compliance with the investment firm s duty to act in the best interest of the client are allowed For all other services, inducements are allowed only where the payment or benefit is designated to enhance the quality of the relevant service to the client, and does not impair compliance with the investment firm s duty to act honestly, fairly and professionally in accordance with the best interest of its clients. Ex ante information should be provided to the client ESMA has been invited by the EC to provide technical advise on the definition of minor non-monetary benefits and on the quality enhancement test 4

5 Where are we going? Presentation of the main provisions of MIFID 2 and of ESMA final technical advice In December 2014, ESMA published its final report after a public consultation in August 2014: The enhancement quality test: A nonexhaustive list is provided Inducements are allowed where notably justified an additionnal or higher level service, proprotionalto the level of inducements received The approach on the minor non monetary benefits is more balanced The list is open Guidelineswill ensure consistent assessement across the EU 5

6 Focus on financial research When should it be regarded as an inducement? The provision of research to investment firms providing portfolio management or other services to clients is not an inducement if it is paid: by the investment firm out of its own resources, or from a separate research payment account where: the research payment account is funded by a specific research charge to the client the specific research charge is based on a research budget and is not linked to the volume and/or value of transactions. A research budget has to be set up and regularly assessed. Appropriate controls should be in place the agreement of the client is needed and ex ante and ex post information must be provided to the clients 6

7 Thank you Questions? 7