Cyprus July 19, 2011
One of the major areas of concern for European Forex brokerage firms is ensuring strict compliance with regulatory authority requirements and in particular the EU M arkets i n F inancial I nstruments D irective (MiFID) over the provision of ‘ A dvice ‘ or ‘ R esearch R ecommendations ‘ . Whil st an investment firm attempts to provide its client s with the best possible investment opportunities , there are boundaries to observe i n providing information relating to an underlying product of a financial instrument; especially if these c ould fall under the definition of Investment Advice or I nvestment R esearch. A s part of the continuing efforts of the leading financial services consult ancy firm, MAP S.Platis , to develop the industry ‘ s perspective and understanding of the relevant regulatory framework, the firm ‘ s compliance teams initialised a discussion between the European Authorities which resulted in public answers and insights on this subject.
The Markets in Financial Instruments Directive 2004/39/EC (known as "MiFID") is the European Union regulatory apparatus harmonising regulation for investment services across the 30 member states of the European Economic Area (EEA). The main objective of the Directive is to increase competition and promote consumer protection in investment services within the EEA.
As part of the continuing efforts of MAP S.Platis to develop, support and assist the industry’s point of view of the relevant regulatory framework, the firm’s compliance teams initialised a discussion between the European Authorities which resulted in public answers and insights on the subject of the provision of ‘advice’ or ‘research recommendations’ relevant for FX brokers and market makers.
The provision of ‘advice’ or ‘research recommendations’ on underlying investment products, such as currencies, gold etc, of MiFID financial instruments (for example Contracts for Differences, CFDs) has long troubled European FX Brokerage Firms. More specifically, there has been increased speculation around the question of whether the provision of opinions or views on the direction of such underlying products falls under the MiFID definitions of ‘Investment Advice’ or ‘Investment Research’.
However, according to the European Authorities, the fact that the financial instruments offered by the investment firm (for example CFDs) are perfectly correlated with the underlying product for which recommendations are provided creates a strong connection between the two. Thus, recommendations relating to the underlying products can be considered as "preparatory to the provision of investment advice" and, in this respect, according to the European Authorities, they should be considered as "an integral part of the service provided".
"Therefore, making a distinction between advice regarding the underlying product of a financial instrument and the financial instrument itself is likely to be considered as artificial by the European Regulators and contrary to the said obligation of European Investment Firms as well as to the general obligation to act honestly, fairly and professionally in accordance with the best interests of its client. So, assuming all other relevant conditions are met, such advice should be considered as falling under the definition of investment advice," continues Platis.
Another area which was covered during these deliberations was investment research. According to the European Authorities, again at first sight, research material or information recommending or suggesting an investment strategy (explicitly or implicitly) concerning one or several products which are not themselves classified as financial instruments (e.g. currency pairs) would seem to fall outside the definition of investment research under MiFID.
However, Dr. Platis stresses the dangers of simplifying this approach by reference to the stance of the European Regulators on the matter. "Research relating to perfectly correlated underlying products to MiFID financial instruments will most likely fall under the definition of investment research under MiFID if, given the context and substance of the research, it implicitly suggests an investment strategy in relation to the actual MiFID financial instruments" he adds.
"Notwithstanding the above" he cautions "even in cases where research or advice relating to the underlying of a financial instrument may not eventually be considered by the European Regulators as investment research or investment advice under MiFID, it still remains information provided to a client or a potential client. Thus, it will still need to comply with the relevant MiFID requirement to be ‘fair, clear and not misleading’ as well as all associated conditions with which information must comply in order meet this requirement".
Despite this very useful insight, the discussion itself reveals the dynamic and complex regulatory framework in which European Investment Firms must operate. This is something that Dr. Platis emphasises in his concluding remark.
"Issues like this go to show why European Investment Firms need to remain on top of all regulatory issues and maintain comprehensive and continuous compliance support; especially in the increasingly complex regulatory nature of the retail Forex industry."
About MAP S.Platis
MAP S.Platis is today the lead ing consultancy firm in the field of registration, licensing and comprehensive support of European Union Banking and Payment Institutions, Investment Firms, Market Makers and Brokerage Houses, as well as of investment and financial structures, such Financial Corporate Groups / Conglomerates, Hedge Funds, UCITS and International Collective Investment Schemes. MAP S.Platis maintains today in Cyprus an outstanding market share of promoting and consulting of over 65% of all Cyprus Investment Firm registrations and operations under the European MiFID Directive. Through its contribution in the sector, MAP S.Platis sets the standard in the industry of European Union financial services consultancy.
The specialist Financial Services Advisory Teams of MAP S.Platis, through their unrivalled and comprehensive support, remain the sector’s strongest promoter in front of the regulators in the EU jurisdictions MAP S.Platis are active. Apart from the registration and licensing services, the expert Financial Services Advisory Teams of MAP S.Platis provide, amongst others, MiFID compliance support (on-line or onsite support), capital adequacy support, risk management support, anti-money laundering support services, operational risk support, internal audit services, and employee training.
For additional information or specialised tailored consultation on the MiFID requirements, please contact the MAP S.Platis Financial Services Advisory Team at: [email protected] .
For more information about the services and products of MAP S.Platis visit : http://www.mapsplatis.com
Disclaimer: This release does not purport to be a definitive and /or a comprehensive guide, but is instead a non-exhaustive, non-comprehensive set of views of the matters concerning the above subject .
Further to the above, the interpretations, opinions, statements and other subjective elements cannot be regarded, under any circumstances, as the opinions and /or interpretations of any pertinent regulatory body in the EU or outside the EU . In this respect, this news release does not intend to construe formally the meaning of any relevant and competent A uthorities ‘ rule/ definition/ requirement/ obligation, nor it should it be considered as being able to do so.
In this respect, MAP S.Platis shall accept no responsibility for any Investment Advice and/or Investment Research undertaken or provided by the reader , following reading this news release .
SOURCE MAP S.Platis