The Swedish Securities Market Commission has published a report with proposals on how the Directive (MiFID II) and the Regulation (MiFIR) on markets in financial instruments should be implemented in to Swedish law. The regulations are coming into force on January 3, 2017. The Securities Market Commission proposes, inter alia, the following changes in Sweden:
The prohibition against receiving compensation from third parties will apply to all advisory services, independent or not, to non-professional clients. The same should apply for portfolio management provided to non-professional clients. The Inquiry proposes that the prohibition be designed so that
benefits from a third party that may have a negative effect on clients’ interests be forbidden and that the Swedish Financial Authority be given the right to prescribe in detail the benefits in question. If an independent advisor or portfolio manager accepts a benefit from a third party the advisor/manager must forward this benefit to the client.
If the investment firm has informed the client that the advice is independent, the firm may not accept and retain benefits from any third party. The same shall apply to institutions which provide portfolio management and securities firm providing portfolio management and independent investment advice to professional clients. Only companies that do not receive and retain compensation from other than the client who exclusively provides advice on external products can call themselves independent advisors or act in the capacity to provide independent advice.
An investment firm, when rendering services to clients, may not accept benefits from anyone other than the client, unless the client has been informed of the benefit and the benefit is designed to enhance the quality of the service concerned and does not prevent the firm from complying with its duty to act in the best interest of its clients.
The prohibition on accepting and retaining benefits from third parties that may have a negative impact on clients’ interests will also apply to insurance companies and insurance intermediaries when they provide financial advice to consumers in the course of their ordinary business. The same shall apply according the rule stating that only companies that do not receive compensation from other than the client and who exclusively provides advice on external products may call themselves independent advisors or act in the capacity to provide independent advice. Fund Management and AIF-managers may in its regular operations only give advice on funds that the company or the administrator manages itself, why the prohibition on accepting and retaining benefits is not relevant for these types of businesses. If a fund management company or an AIF-Manager gives advice affordable support in a side business license should be rules on commissions apply.
Commission prohibition should be designed in such way that there are commissions paid in correlation with advice or portfolio management that are to be prohibited. Correlation should be interpreted restrictively in order to prevent circumvention of the commission prohibition. Commission prohibition should not be able to be circumvented by, for example, the client being asked to self-complete the purchase, for example, via an Internet service. If the clients transaction in such cases leads to a compensation that in some way could give the adviser benefit, it is a compensation in correlation with advice that could be prohibited. Even if the clients orders are executed by a different company and this company is the primarily receiver of the compensation, it may be a case of a prohibited compensation, if the compensation finally reaches the adviser or any company with close connection to the advisor.