News - Regulation
The European Parliament has voted against a ban on commission payments in Europe in a move placing it at odds with the FSA’s stance under the incoming Retail Distribution Review (RDR).
MEPs approved a draft of the Markets in Financial Instruments Directive (MiFID) today by an overwhelming majority, lending their backing to wording which allows payments from fund providers to advisers and distributors.
Some 495 out of 529 MEPs voted through the directive, which runs counter to the FSA’s plan to outlaw commission in the UK retail market under RDR, which comes into force in January 2013.
Instead of a ban, MiFID calls for increased transparency and disclosure of payments, and requires providers to avoid remunerating staff in a way that creates conflicts of interest between them and their clients.
The FSA has previously said it is relaxed over the outcome of the vote, as European rules allow national jurisdictions to go "above and beyond" the minimum standards agreed at the European Directive level. A spokesperson for the UK regulator said: "Europe has been well briefed on this [RDR]. We do not expect any conflict."
However, the Investment Management Association has previously written to the FSA voicing concerns UK domiciled funds may come with a commission ban, while competitor EU domiciled funds will not.
In a letter, the IMA said: "The European Parliamentary Committee has agreed as part of the MiFID review that rebates directly to consumers are acceptable. If the UK persists with its proposal to ban cash rebates to investors in funds, then it is not certain that it can ban (directly or via rules on UK intermediaries) cash rebates to investors from non-UK Ucits. This raises a serious concern about UK competitiveness and might leave the UK open to legal challenge."
Meanwhile, MEPs also voted to tighten rules on high frequency algorithmic trading, in which computers trade millions of orders per second, with little or no human intervention. They voted in favour of measures to ensure all orders are valid for at least 500 milliseconds and cannot be cancelled or modified during that time.
Firms will also have to ensure trading venues are able to cope with sudden surges in orders or market stresses, and have ‘circuit breakers' in place to suspend trading if necessary.
Lead MEP Markus Ferber said: "This is the core of financial legislation: we regulate financial markets, rather than individual financial products, as we used to do in the past. All trading facilities must be subject to rules, which is why we established the organised trading facility category.
"We also want to have the clear rules on high-frequency trading, so as to curb speculation without harming the real economy. There is no risk-free financial market, but where there is financial trade, it should take place on regulated markets and be connected to the real economy."
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