In 2015 the FCA carried out a thematic review in relation to the benefits (or inducements) provided and received by firms conducting MiFID II business and it included those firms carrying out regulated activities in relation to a retail investment product (“Firms”).
The FCA opted not to publish an official report of their findings in relation to the thematic review and rather incorporate their findings into their planned MiFID II Consultation Paper which is due to be published later this year. Consequently, the FCA have decided to publish a short “key findings” piece to serve as a reminder to Firms of their expectations around the current inducement rules.
This thematic review was produced after the issuance of their Finalised Guidance 14/1, “Supervising retail investment advice: inducements and conflicts of interest” which sought to consider the discrepancy between the inducement rules (COBS 2.3) which relate to such Firms and the requirement that any payment or benefit provided should enhance the quality of service provided to the client.
Key expectations that the FCA recommends for these Firms are as follows:
- when hospitality is either provided or received, Firms must consciously consider whether such benefits are properly designed to meet the necessary requirements i.e. enhance the quality of service to the client and conducive to the necessary business discussions;
- if hospitality if offered to a client, such as a sporting event, which in isolation does not enhance the quality of service to the client, but is carried out in connection with other benefits such as training events, such hospitality as a whole will be considered compliant with the inducement rules;
- gifts and hospitality logs should be properly maintained by the Firm and all necessary details recorded in order to ensure effective monitoring and compliance with the inducement rules;
- where a Firm has assisted a product provider with training, for example, and consequently incurred costs, the product provider should only make payment to the Firm in relation to those costs and not in excess of, otherwise payment in excess could be considered an inducement; and
- Firms should provide clients with information relating to the value of allowed benefits which can be provided or received. This will allow clients to understand the possible level of inducements and enable them to ultimately make an informed decision.
Should you require any assistance in relation to the inducement rules, Cleveland & Co, your external in-house counsel, is here to help.