Member of Fecif Board of Directors & Foreign Affairs, Anasf
IDD and MiFID II. Beloved sisters or competing friends?
Time has come. On 19 March the amendment postponing the application date of directive 2016/97 (Insurance Distribution Directive - IDD) has been published in the Official Journal of the European Union. By 1 July Member States shall thus adopt and publish all the laws, regulations and administrative provisions necessary to comply with the directive. National measures shall apply from 1 October at the latest.
Given the very short period of time left, national institutions and stakeholders are working on the draft measures for the transposition of the IDD. This is also the case in Italy: a draft decree amending the Insurance Code of 2005 has recently been presented to Parliament.
One of the main issues at stake is the achievement of a level playing field between the insurance and financial sectors. This is particularly true for insurance-based investment products (IBIPs), which are often made available to customers as potential alternatives or substitutes to financial instruments regulated under MiFID II. With regard to IBIPs, the need to ensure consistent investor protection and avoid the risk of regulatory arbitrage has been achieved by providing for specific IDD requirements, in addition to the conduct of business standards defined for all insurance products. Such specific MiFID-inspired standards encompass the provision of appropriate information to customers (including disclosure of all costs and related charges), rules on conflicts of interest and, when advice is provided, the assessment of suitability.
When advising on IBIPs, insurance distributors will thus be required to obtain all the necessary information regarding the customer so as to recommend suitable investment solutions: knowledge and experience in the relevant investment field, financial situation (including the ability to bear losses) and investment objectives (including risk tolerance).
From this point of view, IDD and MiFID II may appear as two beloved sisters, getting along quite well. But there’s no rose without a thorn and the playing field is not so thoroughly levelled, because the rules on inducements are not exactly aligned between the two directives. In MiFID II the general rule is that inducements are admitted if they enhance the quality of the service provided to the client. Inducements are regulated differently under the IDD, as they shall not have a detrimental impact on the quality of the relevant service provided to the customer. To put it more simply, while MiFID II adopts a positive stance with regard to inducements, the IDD brings everything back to a neutral one.
Les jeux sont faits, rien ne va plus? Not exactly. The IDD is aimed at minimum harmonization. Therefore, Member States may opt for more stringent – let’s say, MiFID-aligned – provisions to enhance customer protection. This seems to be the case of the new regulatory framework for insurance distribution in Italy. The European delegation law of 2016, setting the principles and criteria for the transposition of the IDD, explicitly requires to align, as much as possible, the new rules on insurance distribution with the MiFID II framework. This requirement may thus represent the key to consistent regulatory harmonization.
Will the Italian legislator achieve a consistent set of rules between insurance products and financial instruments, especially with regard to IBIPs? Will other Member States follow the Italian example? The answers to these questions will be discovered in the course of this year. In the meantime, Anasf – the Italian association of financial advisers – and FECIF will follow and contribute to every relevant regulatory development.