Inducements: a European view

With the FSA’s major consultations on the Markets in Financial Instruments Directive (MiFID) launched, the focus now switches to efforts at EU level to clarify the operation of the Directive. The Committee of European Securities Regulators’ (CESR) public consultation on Inducements under MiFID (06-687, December 2006) expresses views which have important implications and are unlikely to command universal acceptance. It is important, says Richard Stones of Lovells, that the industry engages in discussion with CESR, since its recommendations are (put at the lowest) likely to influence the Directive’s application in the UK.

Richard Stones is a consultant at Lovells. He may be contacted on tel: +44 20 7296 2000; email: richard.stones@lovells.com

What MiFID requires

The MiFID regime on inducements is set out principally in Article 26 of the MiFID Implementing Directive. The provisions represent an expansion of the obligation of investment firms to act “honestly, fairly and professionally in accordance with the best interests of the client” set out in Article 19(1) of MiFID itself. Firms may not provide or receive any fee, commission or non-monetary benefit unless (in summary) it falls into one of the three following permitted categories: