Wednesday, 12 January 2011

Execution Only

Among the most prominent characteristic traits of the EU is that it believes we need protecting from ourselves by over regulation - whether we wish it or need it - and that if an EU proposal fails at the first hurdle then it'll keep coming back again and again until it succeeds.

This mindset is neatly illustrated by the latest proposals by the EU Commission to overhaul its Markets in Financial Instruments Directive. Dubbed Mifid II it's another power grab on the City of London a review of the original with the aim of regulating all those investment services it missed the first time around.

One of the most radical parts of Mifid II is a proposal to ban execution-only investments. 'Execution only' is a form of business where a customer has requested a specific investment but has chosen not to receive independent financial advice. This is aimed primarily at professional investors who have enough knowledge to make their own choices, thus cutting out unnecessary advice which in turn reduces paperwork and costs. Execution only has been an established market in the UK for nearly 30 years. People making their own choices by their own free will.

Freedom of choice (and the right to lose our own money) is an anathema to the EU project, so they propose a ban (my emphasis):

Do you consider that, in the light of the intrinsic complexity of investment services, the "execution-only" regime should be abolished.
In other words people are too stupid to make their own decisions so they need their hand held:

Deleting Article 19(6)

This implies abolition of the execution only regime. In support of this option it may be argued that retail clients – who are essentially concerned by the provision of execution only – should always expect a higher standard of service from intermediaries...

The net effect being that investors will be forced to pay for something that they neither want nor need. Unsurprisingly it's not the first time that this ban has been proposed, this from 2003:

Theresa Villiers, a British MEP, announced last week that she is taking up the cudgels in support of cheap, no-frills, execution-only stockbroking, which looks like becoming the latest victim of EU interfering bureaucracy.

Investors who want the freedom to use such a service should sit up and take notice because the EU nannies are suggesting that some of us are not "suitable" investors.

Villiers is the Rapporteur for the EU Investment Services Directive which, as currently drafted, would require stockbrokers to run suitability checks on all clients' investments - even those that have opted to trade without advice through execution-only share dealing services.

The proposal was dropped after opposition from the UK Government, but one wonders how hard this Government will fight. Not very I suspect.

What it does prove though is that the EU never ever takes no for an answer.

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