Article 19(1) of the Level 1 Markets in Financial Instruments Directive 2004/39/EC ("MiFID") provides that when providing investment services and/or, where appropriate, ancillary services to clients an investment firm must act honestly, fairly and professionally in accordance with the best interests of its clients. Article 26 of the Level 2 Implementing Directive 2006/73/EC (entitled "Inducements") sets further requirements in relation to the receipt or payment by an investment firm of a fee, commission or non-monetary benefit.
CESR is considering issuing a recommendation to its members setting out a common approach to the operation of Article 26 of the Level 2 Directive. This consultation paper presents proposals and questions which will assist it in developing that recommendation. Consulting in this way will help to ensure that the views of the industry and consumers can be fully taken into consideration.
The consultation paper:
- Provides a general explanation of Article 26 and identifies inducements as a source of conflicts of interest.
- Discusses the circumstances in which a fee or other benefit will be considered to be paid or provided to or by the client or a person acting on behalf of the client.
- Discusses the application of the conditions that third party receipts and payments must meet in order not to be prohibited, illustrating the concepts with a number of examples.
- Discusses some issues to do with disclosure.
- Discusses the position of tied agents under Article 26.
- Asks for respondents' views on the application of Article 26 to softing and bundling arrangements.
This consultation paper is open for comments until 9 Febuary 2007. Please post your comments online.