MAP S.Platis Raises Key Questions With EU Regulators Leading to FX Industry Insights
By Map S.platis, PRNEMonday, July 18, 2011
LIMASSOL, Cyprus, July 19, 2011 -
One of the major areas of concern for European Forex
brokerage firms is ensuring strict
compliance with regulatory authority
requirementsand in particular the
EU Markets
in
Financial
Instruments
Directive(MiFID)over
the provision of
‘Advice‘
or ‘Research
Recommendations‘.
Whilst an investment firm
attempts to provide its
clientswith the best possible
investment opportunities, there are
boundariesto observe
inproviding information relating
to an underlying product of a financial instrument; especially if
these could fall under
the definition of Investment Advice or
Investment Research. As
part of the continuing efforts of the leading
financial services
consultancyfirm, MAP
S.Platis,to develop the
industry‘s
perspective and understanding of
the relevant regulatory framework, the
firm‘s compliance
teams initialised a
discussionbetween the European Authorities which
resulted in public answers and insights on this
subject.
MAP S.Platis is today the leading provider of financial services
consultancy to the European Union Investment industry in the field
of registration, licensing and comprehensive support of European
Union Investment Firms (including FX Brokerages and Market Makers),
Banking and Payment Institutions and Funds. MAP S.Platis was in
fact the driving force behind the very first FX Investment Firms
licensed directly under MiFID in the European Union, whilst today
the firm boasts a market share of over 65% of all Investment Firm
registrations and operations in Cyprus under the European MiFID
Directive, as Cyprus Investment Firms.
The Markets in Financial Instruments Directive 2004/39/EC (known
as “MiFID”) is the European Union regulatory apparatus harmonising
regulation for investment services across the 30 member states of
the European Economic Area (EEA). The main objective of the
Directive is to increase competition and promote consumer
protection in investment services within the EEA.
As part of the continuing efforts of MAP S.Platis to develop,
support and assist the industry’s point of view of the relevant
regulatory framework, the firm’s compliance teams initialised a
discussion between the European Authorities which resulted in
public answers and insights on the subject of the provision of
‘advice’ or ‘research recommendations’ relevant for FX brokers and
market makers.
The provision of ‘advice’ or ‘research recommendations’ on
underlying investment products, such as currencies, gold etc, of
MiFID financial instruments (for example Contracts for Differences,
CFDs) has long troubled European FX Brokerage Firms. More
specifically, there has been increased speculation around the
question of whether the provision of opinions or views on the
direction of such underlying products falls under the MiFID
definitions of ‘Investment Advice’ or ‘Investment Research’.
Dr. Stelios Platis, managing director of MAP S.Platis, explains,
“With regards to investment advice, personal recommendations
provided to a client in respect of one or more transactions
relating to products which are not classified under MiFID as
financial instruments, for example currency pairs, could seem at
first sight to fall outside the definition of investment advice
under MiFID and, therefore, not be subject to the MiFID
requirements relating to investment advice.”
However, according to the European Authorities, the fact that
the financial instruments offered by the investment firm (for
example CFDs) are perfectly correlated with the underlying product
for which recommendations are provided creates a strong connection
between the two. Thus, recommendations relating to the underlying
products can be considered as “preparatory to the provision of
investment advice” and, in this respect, according to the European
Authorities, they should be considered as “an integral part of
the service provided”.
“Therefore, making a distinction between advice regarding the
underlying product of a financial instrument and the financial
instrument itself is likely to be considered as artificial by the
European Regulators and contrary to the said obligation of European
Investment Firms as well as to the general obligation to act
honestly, fairly and professionally in accordance with the best
interests of its client. So, assuming all other relevant conditions
are met, such advice should be considered as falling under the
definition of investment advice,” continues Platis.
Another area which was covered during these deliberations was
investment research. According to the European Authorities, again
at first sight, research material or information recommending or
suggesting an investment strategy (explicitly or implicitly)
concerning one or several products which are not themselves
classified as financial instruments (e.g. currency pairs) would
seem to fall outside the definition of investment research under
MiFID.
However, Dr. Platis stresses the dangers of simplifying this
approach by reference to the stance of the European Regulators on
the matter. “Research relating to perfectly correlated underlying
products to MiFID financial instruments will most likely fall under
the definition of investment research under MiFID if, given the
context and substance of the research, it implicitly suggests an
investment strategy in relation to the actual MiFID financial
instruments” he adds.
“Notwithstanding the above” he cautions “even in cases where
research or advice relating to the underlying of a financial
instrument may not eventually be considered by the European
Regulators as investment research or investment advice under MiFID,
it still remains information provided to a client or a potential
client. Thus, it will still need to comply with the relevant MiFID
requirement to be ‘fair, clear and not misleading’ as well as all
associated conditions with which information must comply in order
meet this requirement”.
Despite this very useful insight, the discussion itself reveals
the dynamic and complex regulatory framework in which European
Investment Firms must operate. This is something that Dr. Platis
emphasises in his concluding remark.
“Issues like this go to show why European Investment Firms need
to remain on top of all regulatory issues and maintain
comprehensive and continuous compliance support; especially in the
increasingly complex regulatory nature of the retail Forex
industry.”
About MAP S.Platis
MAP S.Platis is today the leading consultancy firm
in the field of registration, licensing and comprehensive
support of European Union Banking and Payment
Institutions, Investment Firms, Market Makers and Brokerage
Houses, as well as of investment and financial structures, such
Financial Corporate Groups / Conglomerates, Hedge Funds, UCITS and
International Collective Investment Schemes. MAP S.Platis
maintainstoday in Cyprusan outstanding
market share of promoting and consulting of over 65% of all
CyprusInvestment Firm registrations and operations under
the European MiFID Directive. Through its contribution in the
sector, MAP S.Platis sets the standard in the industry of European
Union financial services consultancy.
The specialist Financial Services
Advisory Teams of MAP S.Platis, through their unrivalled and
comprehensive support, remain the sector’s strongest promoter in
front of the regulators in the EU jurisdictions MAP S.Platis are
active. Apart from the registration and licensing services, the
expert Financial Services Advisory Teams of MAP S.Platis
provide, amongst others, MiFID compliance support (on-line or
onsite support), capital adequacy support, risk management support,
anti-money laundering support services, operational risk support,
internal audit services, and employee training.
For additional information or
specialised tailored consultation on the
MiFID requirements, please contact the MAP
S.Platis Financial Services Advisory Team at:
For more information about the services and products of MAP
S.Platis visit:
Disclaimer: This release does not
purport to be a definitive and/or a comprehensive
guide, but is instead a non-exhaustive, non-comprehensive
set of views of the matters concerning the above
subject.
Further to the above, the interpretations, opinions,
statements and other subjective elements cannot be regarded, under
any circumstances, as the opinions and/or
interpretations of any pertinent regulatory body in the
EU or outside the EU. In this respect,
this news release does not intend to construe
formally the meaning of any relevant and competent
Authorities‘ rule/ definition/ requirement/
obligation, nor it should it be considered as being able to do
so.
In this respect, MAP S.Platis shall accept no responsibility
for any Investment Advice and/or Investment Research
undertaken or provided by the reader,
following readingthis news release.
Website:
CONTACT: Alexandros Constantinou, Consultant, Email: aconstantinou at mapsplatis.com, Phone Number: +357-2535-1335
Tags: Cyprus, July 19, Limassol, Map S.platis
