From left: Nezha Hayat, CEO of the Moroccan Capital Market Authority, IOSCO Chair and CEO Ashley Alder, Maureen Jansen, Chair and CEO of the Ontario Securities Comission, Elisabeth Roegele, CEO of BaFin, and ASIC Chair James Shipton.

Regulators from around the world agree that conflicts of interest in financial advice needs addressing, with representatives from Canada, Germany and Morocco stating that resolving conflicts is a priority in their region.

Speaking on a panel at the 2019 ASIC Annual Forum in Sydney this morning, Elisabeth Roegele, deputy president and chief executive director of securities supervision and management at the Federal Financial Supervisory Authority in Germany, said the industry there faces similar conflict issues as Australia.

“One of the major problems… we have seen are the conflicts of interest that investment institutions are facing, selling products and knowing that they earn money and that perhaps inducements are higher for one product over the other product,’ Roegele said. “This could obviously cause conflicts of interest.”

The Federal Financial Supervisory Authority, or ‘BaFin’, is the German banking, financial services and insurance regulator. Roegele explained that BaFin is leaning on the most recent iteration of the Markets in Financial Instruments Directive, MiFID II, to “support independent advice”.

“We have one and a half years of experience now in Europe with MiFID II,’ she said. “We hope this is very helpful tool for investors to make good choices regarding their investments for the future.”

‘MiFID II’ refers to the second iteration of the Markets in Financial Instruments Directive, which legislates, among other things, the new Legal Entity Identifier system that is now being rolled out in Australia.

ASIC chairman James Shipton, who chaired the panel, said he was interested to see how MiFID II was working and had been ‘’accepted” overseas.

“We hope it’s an improvement with regards to investor protection,” Roegele said. “It’s a very, very good tool that empowers us.”

Also on the panel was Maureen Jensen, the chair and chief executive of the Ontario Securities Commission. Jensen said the Canadian jurisdiction is going through the same changes around consumer expectations that Australia is; trust and confidence in the financial services market is high on the agenda.

‘We’re working on something called the ‘client focused reforms’, and it’s really focused on upping the standard,” Jensen said, before explaining how financial advice regulation in Canada is still being geared towards product sellers.

“What we’ve seen in global markets is that we’ve gone from what was supposedly a sales incentive culture to now this culture being branded as advisory,” she continued. “But what we’re seeing is that all the criteria and rules that are still in place are focused on selling.”

She said the Ontario Securities Commission is identifying conflicts of interest “where products are chosen in the best interests of the client, rather than just because its suitable”.

“We’re looking at financial incentives that are embedded in the product as well as incentives within firms to sell more of one product versus another.”

Speaking to Professional Planner, Nezha Hayat, the chairperson and chief executive of the Moroccan Capital Market Authority, said that the North African country is on the cusp of introducing licensing arrangements for financial advisers that will help curb conflicts of interest.

“In a few weeks we will have legislation published and then advisers can start registering with us, so they will then be under the same best interest duty as elsewhere,” Hayat said. “We are making rules so that advisers are not in conflict of interest situation.”

Hayat’s perspective provided an interesting counterpoint to that of the developed markets. Despite having “less than 50” financial advisers in Morocco, Hayat said they faced a lot of the same challenges as other regulatory bodies.

“Up to now the successful advisers are employed by banks,” Hayat said. “Soon we can have independent advisers that will have a positive impact.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
Leave a comment