Alfredo Oñoro: “Very few European entities will be configured as independent”

“A large part of the European investment system is based on incentives,” and for this reason, “very few European entities will be configured as independent.” This is the belief of Alfredo Oñoro, Compliance Director of CECA, who held a briefing yesterday on MiFID II and its main updates. The definition of advisory services as independent or not independent is one of the significant decisions that credit institutions and investment service companies will have to make ahead of January 2018, when MiFID II comes into effect, a decision that will directly impact their business models.

This prevailing reality in continental Europe today, however, does not have to be detrimental to the final investor, believes Oñoro. In fact, it does considerable good: it increases financial inclusion. “Incentives in the distribution of investment products support a significant part of the cost of networks and make them reach more places,” he justifies.

While at first glance very few entities will define themselves as independent when advising clients on investments, the truth is that in Spain several of the major banking groups have already declared their intention to adopt a mixed model that includes both independent and non-independent advice. Regarding this possibility, Oñoro considers, “the most transparent way to implement a mixed advisory model would be to have a structure of subsidiaries,” where different subsidiaries of the same group provide these services separately. However, he clarifies, “perhaps it is not necessary,” depending on the definitive shape that the Spanish transposition takes, since within the same entity, advisors and specialized bankers could offer these services through different channels, that is, to differentiated segments of clients, as long as each professional offers only one of them.

For the incentives to be valid, in the realm of non-independent advice – they will be completely prohibited in independent advice – they must have been designed to enhance the quality of service to the client. Within this condition, MiFID II refers to three assumptions in which it considers that service quality is increased, although as it is an open list at the European level, countries could transpose the directive to their respective national legislations along with additional assumptions. Presumably, this is the case for markets such as those in Germany, Italy, and France, which will have – Germany has already approved it – or will attempt to have a fourth assumption of a different nature to maintain their local particularities in the distribution of investment products and not have to fully mimic the Anglo-Saxon model. However, Spain, despite the lobbying done by the industry and Inverco, seems not to follow the path of its neighbors.

Spain may not have a fourth assumption regarding the validity of incentives in distribution.

“The great surprise in the draft transposition of MiFID II in Spain is that it was done without a fourth assumption and with a closed list. And that makes no sense,” criticizes Oñoro. “A closed list would only make sense if it included a fourth assumption,” he defends. The fourth assumption proposed by Inverco “was not advisory, but very close to it, with the information and necessary tools in the pre-sale and post-sale phases,” he recalls.

In the meeting, Oñoro extended his wishes to the entire Spanish industry, especially that of funds. “We want a closed list if it includes the fourth assumption and, if not, an open list and let each one take their risks. Basically,” he notes, “what we want is for all entities to have equal opportunities to distribute and freedom of decision, without the need to drastically change their distribution model.”