Twin Peaks II: MiFID for Insurance & saving products in Belgium
At the end of the summer period, Sia Partners would like to come back on the new requirements of a Belgian law which entered into force four months ago: Twin Peaks II.This article aims at offering an overview of the main changes introduced by these new requirements, but also to shed light on the main associated regulation, more specifically MiFID (Market In Financial Instruments Directive).
The Twin Peaks model: quick review & overview of new requirements
In the aftermath of the crisis, the legislator has decided to review the structure of how prudential supervision becomes organized in Belgium.
The legislator has opted to move from an integrated supervision model towards a bipolar model, the Â« Twin Peaks model Â», in order to reinforce the integration between micro- and macro-prudential supervision with special attention for systemic risk.
Two actors are playing a crucial role in this model, more specifically the National Bank of Belgium (NBB) and the Financial Services & Markets Authority (FSMA).
The NBB responsibilities could be mainly synopsized in the maintenance and preservation of the macro- and micro-economic stability of the financial system. In addition, it should also ensure the financial soundness of financial institutions by imposing requirements in areas regarding solvency, liquidity and profitability.
The FSMA main responsibilities can be briefly outlined as follows: the supervision of listed companies & financial markets, the supervision of financial products, the supervision of financial service providers and intermediaries, the supervision of supplementary pensions, the enhancement of financial education and the monitoring of compliance with the rules of conduct.
Twin Peaks II requirements mainly impact the FSMA responsibilities and aims at better informing and protecting consumers as also at increasing the power of the FSMA. More specifically, Twin Peaks II (TP II) requirements are introducing extended rules of conduct to financial service providers and insurance companies & intermediaries:
- New rules of conduct applicable for all financial products & services, not only anymore for investment services.
- Always engage in the best interest of the client in an honest, fair and professional way.
- Focus on fair, clear and non-misleading information towards clients.
- Equal degree of consumer protection for insurance investments as for other type of financial investments.
- Obligation for each financial actor, coming in contact with customers, to possess the necessary and essential product knowledge.
TP II also enlarges the scope of monitoring / supervising capabilities:
- Use of Â« Mystery Shoppers Â» as potential real customers without having the obligation to disclose that they act as representatives of the FSMA.
- Access to those parts of websites of financial intermediaries which are most of the time only reserved for their respective customers, commonly used to offer specific services or products.
Finally, TP II offers FSMA more and appropriate (administrative) sanctions:
- Generalization of imposing penalties: Incentive to adjust behaviour of providers on short term notice when deemed necessary.
- Right to publish all imposed penalties to the general audience.
- Right to prohibit commercialization of certain products.
Introduced in mid-2013 and entered into force as of 30 April 2014, financial institutions had some months to prepare and to cope with the first main and direct impacts: the "Mifidisation" of insurance distribution under Belgian law.
The "Mifidisation" of insurance distribution under Belgian law
As Twin Peaks II requirements request an equal treatment of investment products, whether insurance based or not, Belgian financial institutions had to extend the application of MiFID requirements to life insurances, saving insurances and other investment products:
- For life insurance (branch 23) and saving insurance products (branches 21, 22 or 26) and partially to other insurance products, the rules listed hereunder are now applicable:
- Know Your Customer (KYC) principles & detailed information to customers.
- Suitability & appropriateness assessment (only for investment-linked insurance products).
- Increased reporting to authorities.
- New obligations regarding the internal organization (complaints handling for instance).
- For other investment products (as term deposit accounts, regulated savings accounts and other saving accounts), two new requirements could be pinpointed:
- Increased comparability of savings accounts.
- More restrictive rules regarding marketing related information
MiFID and MiFID II: details and what is next
As briefly introduced above, Sia Partners would like to come back on MiFID (applicable since end of 2007) and quickly introduces MiFID II in this section.
MiFID aims at protecting client interests, briefly meaning to act honestly, fairly and professionally in accordance with client interests, but also to provide clients with appropriate and comprehensive information and with services tailored to the individual client circumstances.
MiFID itself is today applicable to shares, bonds, funds, structured products / notes, options & futures. It is not applicable to saving accounts, time deposit accounts and investment-linked insurance products (Twin Peaks II scope - Belgium).
Sia Partners offers you below a recapitulation of the MiFID content in a five step overview:
Since a couple of years, Europe (European Commission, Parliament and Council) has been working on a recast Directive, MiFID II, along with a new regulation, Markets in Financial Instruments Regulation (MiFIR), which aims at:
- Reinforcing and extending the current MiFID I regime and scope.
- Reinforcing organisational requirements for investment firms.
- Increasing investor protection and the control and transparency of financial instruments trading.
Since this summer, MiFID II final texts were published in the EU official journal & entered thereafter into force. MiFID II texts include the MiFID II revised Directive but also the MiFIR regulation.
Sia Partners will come back in the upcoming months with more details on MiFID II, thereby especially focusing on the correlation and interdependency of MiFID II with other recent financial regulations as EMIR, UCITS, CRD and IMD.
With Twin Peaks II, Belgian financial institutions are already partially prepared for the upcoming of MiFID II. However, MiFID II as MiFIR are very ambitious and cover a broad set of rules, having a vast impact on the activities of financial institutions. Therefore, banks should soon put in place dedicated transversal taskforces in order to be fully compliant with the requirements as of January 2017.