MiFID throws up further Handbook amendments

It was never going to be easy and MiFID implementation is proving to have a lot of knock-on effects, beyond the headline changes to the Conduct of Business Sourcebook (COBS) like pre and post-trade transparency and tests for suitability and appropriateness. The customer categorisation changes are one example; in the absence of countervailing amendments to the Handbook they would extend application of the Principles for Businesses (PRIN) to various non-designated investment business activities not previously covered, including wholesale deposit taking, wholesale insurance broking and regulated funeral plans. The FSA proposes in CP07/16 to preserve the current application of PRIN to non-designated investment business by featuring the existing client categorisations in the PRIN sourcebook. An exception would be made when both non-designated investment business and designated investment business was involved, which might occur when advice was being given on whether to purchase an investment or similar insurance product. In these situations, the FSA would favour using the MiFID client definition for both types of business. Complications arise though in areas like how far treating customers fairly (TCF) should operate in wholesale markets. The wider application of the ‘customer principles’ (6 [treating customers fairly], 7 [clear, fair and not misleading communications], 8 [manage conflicts of interest fairly] and 9 [reasonable care to ensure suitability of advice]) calls for market failure analysis and consultation that cannot be managed in the MiFID timetable. The FSA says it will look at the policy implications in the last quarter of 2007.