Firms in Europe face a host of new suitability reviews for derivatives sold to retail customers under pending sales and advice proposals. While some EU-member countries already require the checks, lawyers said the European Commission is aiming at a standard for those that do not. The requirement would particularly be a major undertaking in the U.K., where brokers commonly sell derivatives without any suitability checks or advice through what are called execution-only sales, lawyers said.
The sales proposals are part of a wider Commission consultation on detailed rules to implement the Markets in Financial Instruments Directive (MiFID). They are a surprise because U.K. brokers assumed execution-only derivatives sales would not be affected because MiFID has a clause that exempts those firms from checking suitability, said Jonathan Herbst, partner with law firm Norton Rose in London. But the Commission's language states the exemption only applies to "non-complex" products, such as equities and funds, said Margaret Chamberlain, partner with law firm Travers Smith in London. Herbst noted the proposals would affect firms that offer contracts for difference and spread betting.
Feedback on the proposals is due mid-September. Calls to Oliver Drewes, Commission spokesman, were not returned by press time.
