BaFin updated their FAQ on MiFID II Conduct of Business Rules
2nd March 2022
Inducements – Clarification on rules for commissions and other benefits
BaFin updated their FAQ on MIFID II Conduct of Business Rules on 15 February 2022. This update provided specific clarification in relation to the topic of inducements.
As a reminder, inducements are commissions, fees and other cash payments (monetary) as well as all non-cash benefits (non-monetary inducements).
In particular, the clarification addresses those situations where clients are no longer clients of the investment firm or where the client-firm relationship is inactive. BaFin has confirmed that an investment firm may neither accept nor grant inducements in those situations as this is not reconcilable with the requirement to prove that a higher quality of service is provided to the client.
BaFin clarifies that the quality enhancing service has to be provided “actively/or at the request of the clients and effectively” to existing clients. Only when this requirement is fulfilled may an inducement be paid to the investment firm.
For an existing customer relationship, an improvement can only be assumed if the investment service being provided complies with section 6 para. 2 of the German Investment Services Conduct and Organisation Ordinance (“WpDVerOV”). The investment firm should provide evidence of this.
What does this mean in practice?
Whilst it remains to be seen how the market will adapt or interpret these practice guidelines, Distributors and Management Companies should start reviewing their distribution agreements to assess whether trailer fees/commissions are currently part of their arrangements and whether the agreements include the necessary provisions to comply with this latest guidance.
How Can Zeidler Group assist?
Zeidler Group can assist fund managers by helping to implement policies and procedures and examine whether distribution agreements are in line with the updated FAQ.
For additional guidance on this matter, please get in touch. Email your query to [email protected].