Local authority pension mandates could be reclassified as retail under Markets in Financial Instruments Directive II (Mifid) proposals.
The mandates, which include municipalities (councils) and local public authorities, could find their status switched to retail to provide better protection to the entities, if the MiFID II proposals go through in their current form.
‘Europe has been focusing on a very strict classification of categories and products,’ said Anthony Kirby, director of regulatory reform and risk management at Ernst & Young. ‘While UK regulators have already been looking into mis-selling and conduct risk for local authorities, this has not been the case in France or Italy yet, where local authorities, such as prefectures, are very small.’
Browning Treasury director Mike Browning said money held in funds will not be affected, but segregated mandates run for local authorities would come under the EU’s new rules. This would see them barred from using certain complex derivatives and hedging structures. ‘The rules will have an impact for firms that have not even clocked they are coming,’ he added.
Kirby warned firms they should prepare to move these mandates to a retail classification ‘earlier [rather] than later’.
He suggests explaining to clients the benefits of retail protection and ensuring they have the knowledge to remain under a professional classification for the time being.