FCA: The basic advice regime under MiFID II & IDD

The Financial Conduct Authority (FCA) has published a web-site update in respect of the basic advice regime under The Second Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD).

For MiFID II, the Regulator states that various conduct requirements will be applied to Article 3 Firms (including ‘Suitability’ Requirements) which it considers to be ‘at least analogous’ to those applying to MiFID Investment Firms. Article 3 Firms cannot provide basic advice on Stakeholder Products under the scope of MiFID, (COBs 9.6). When an Article 3 Firm provides a personal recommendation on a Stakeholder Product, which is also a MiFID Financial Instrument, the Firm must comply with the ‘Suitability’ Rules in COBS 9A. Article 3 Firms, may continue providing basic advice for non-MiFID stakeholder products and may streamlined advice on all MiFID and non-MiFID products.

Firms are also directed to guidance on providing streamlined advice (Advisory Services providing a personal recommendation to consumers), limited to one or more of a client’s specific needs. In doing so, there is no requirement to consider the Client’s circumstances which are not directly relevant to those needs


This update explains the impact of the FCA implementation of the re-cast Markets in Financial Instruments Directive (MiFID II) and Insurance Distribution Directive (IDD) on the basic advice regime. It also directs firms to further information which the FCA has previously published on providing streamlined advice to consumers.

Products in scope of MiFID II

MiFID II requires the FCA to apply various conduct requirements to Article 3 firms (a category largely comprised of financial advice firms and corporate finance boutiques which are currently exempt from taping requirements under the original MiFID regulations) which are ‘at least analogous’ to those which apply to MiFID investment firms. When the FCA implemented MiFID II, it made a decision to apply the MiFID II suitability rules in full to Article 3 firms (and these are transposed in COBS 9A).

This means that Article 3 firms can no longer provide basic advice on stakeholder products within the scope of MiFID, under the rules in COBS 9.6. So, when an Article 3 firm provides a personal recommendation on a stakeholder product which is also a MiFID financial instrument, that firm must comply with the suitability rules in COBS 9A.

Article 3 firms, like MiFID investment firms, may continue to provide basic advice in respect of non-MiFID stakeholder products such as stakeholder pension schemes. Equally, firms can provide streamlined advice on all MiFID and non-MiFID products.

Products in scope of IDD

The basic advice regime is also not fully compatible with the requirements of the Insurance Distribution Directive (IDD). To implement the IDD suitability requirements in full, the FCA is making a similar change to the application of the suitability rules that will prevent firms selling stakeholder products which are insurance-based investment products (IBIPs) for the purposes of the IDD under basic advice rules.

The IDD requirements were due to take effect on 23 February 2018. The European Commission has, however, proposed a delay to the application date of the IDD to 1 October 2018. The Treasury has announced that the government will delay transposing IDD in the UK until the outcome of this proposal has been confirmed. After that the FCA will make its final rules with which firms will need to comply from 1 October 2018.

Further information:
To read the more please follow this link: https://www.fca.org.uk/firms/basic-advice-regime-mifid-ii-idd

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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.


Source and credit: Compliancy Services

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