FECIF - The European Federation of Financial Advisers and Financial Intermediaries

Editorial - April 2022

Fernando ZunzuneguiFernando Zunzunegui
Member of the Advisory Committee

Knowledge gives us autonomy

This statement, that could easily be agreed by anyone, is even more true when we are talking about professionals in any field. Professionals are defined precisely for their technical capacity and their independence of criteria, and these skills depend on their knowledge and competence.

Professionals in financial markets are regulated to ensure that the services they provide are in the best interests of the client. Financial advisers and intermediaries must advise and give information according to the client’s previously assessed profile. Therefore, knowledge and competence requirements are reinforced to meet the objective of acting in the client’s best interest. Moreover, advisers’ and intermediaries’ knowledge plays a key role in enhancing clients’ financial education, through their dialogues and recommendations.

In this context, the European legislator has regulated knowledge and competence requirements for advisers and intermediaries with a harmonising trend, regardless of the financial sector in which they provide services, but giving Member States a broad margin to design staff training.

Acknowledgement of the importance of staff knowledge and competence in the three sectors of financial markets

Knowledge and competence requirements for staff providing advice and giving information are regulated for the three financial sectors: investment, insurance, and credit.

On the one hand, the Markets in Financial Instruments Directive (MiFID II) requires investment firms to ensure and demonstrate to competent authorities that staff giving advice or information about financial instruments, investment services or ancillary services, to clients on behalf of the investment firm, possess the necessary knowledge and competence to fulfil their obligations with regards to information and profile assessment. This requirement has not been detailed in the Directive itself, but by ESMA through its guidelines on knowledge and competence. Therefore, Member States have transposed the MiFID II requirements and National Competent Authorities have detailed the transposition rules by implementing ESMA Guidelines.

On the other hand, both the Mortgage Credit Directive (MCD) and the Insurance Distribution Directive (IDD) establish in similar terms that Member States shall ensure that creditors, credit intermediaries and appointed representatives require their staff to possess and keep up-to-date an appropriate level of knowledge and competence in relation to the manufacturing, the offering or granting of credit agreements, the carrying out of credit intermediation activities or the provision of advisory services; and that insurance and reinsurance distributors and employees of insurance and reinsurance undertakings carrying out insurance or reinsurance distribution activities possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately. The detailed content of the required knowledge and competence is stated in respective annexes of the MCD and the IDD. Consequently, Member States have approved transposition rules, eventually authorising National Competent Authorities to issue technical guidelines detailing the requirements. 

The strategic importance of standardising knowledge and competence

These differences have created divergencies in knowledge and competence requirements both between financial sectors and between Member States. Standardisation of criteria concerning knowledge and competence is of strategic importance to advisers and intermediaries providing advice or giving information in cross-border and holistic manner.

The EC has not reflected this problem in the review process of MiFID II. However, the reviews of MCD and IDD would be great opportunities to harmonise knowledge and competence requirements in the three financial sectors.

Moreover, the certification system of knowledge and competence must be consolidated as the most adequate for preserving advisers and intermediaries’ autonomy, favouring their best execution, and acting in the clients’ best interest - and, in the last instance, enhancing the Capital Markets Union.

Written by Fernando Zunzunegui, Member of the Advisory Committee, EFPA Spain

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