Germany – BaFin MiFID II In Practice

Germany – BaFin MiFID II In Practice

On 15 May 2019, GE BaFin issued MiFID II study showing some success.

  • BaFin's investigation on MiFID II shows some weaknesses but also some progress.
  • The implementation of telephone taping requirements has been largely successful.
  • But room for improvement in suitability declarations and ex-ante cost information.

Study

  • Focused on telephone recordings, suitability statements, ex ante cost information.
  • Reviewed 40 banks: 10 savings and cooperative and 20 private and foreign banks.

Phone Records

  • Institutes had implemented recording of telephone conversations as early as 2018.
  • Previous issues regarding top, start buttons were no longer observed in the study.
  • Evaluations show banking employees are guided by the bank's internal guidelines.
  • Only 1.5% of customers comment negatively on the record of their conversations.

Cost Transparency

  • Forecast quality of costs is high with 90% of cost statements matching actual cost.
  • 98.5% of ex-ante cost information provided on time, on permanent data medium.
  • 92.7% comply with Annex II of Delegated Regulation (EU) 2017/565 in their detail.

Different Cost Statements

  • Most cost information concerns specific international securities identification number.
  • Still some generic cost statements where costs reported regarding whole asset class.
  • Generic cost statement decrease from 6.7 percent to 4.5 percent compared to 2018.
  • Such cost statements shown to have higher error rate when forecasting entry costs.
  • However average forecast deviation increased from 94.5 percent to 155.5 percent.

Individual Information

  • Ex-ante cost information still diverse, mainly due to lack of uniform market standard.
  • BaFin discussing this with ESMA, supervisory authorities of other EU member states.

Suitability Statement

  • BaFin's main criticism is that in many cases no qualitative comparison between the client's information and the properties of the recommended product is documented.
  • Many statements contain blanket formulaic statements and no additional information.
  • Documentation regarding cost-benefit analysis re portfolio shifts is also a weak area.