Tue, Jul 03, 2018 - Page 10 News List

German banks plotting MiFID II counterattack

DISINCENTIVE:Instead of promoting transparency, the new regulations are so time-consuming they are discouraging clients from investing, bankers said


German banks are not taking Europe’s biggest regulatory overhaul in a decade lying down.

The nation’s bankers are plotting to water down the revised Markets in Financial Instruments Directive (MiFID II) regulations that are increasing costs and eating into what are already the lowest profit levels in northern Europe.

They are in early talks to coordinate efforts to lobby local watchdog Federal Financial Supervisory Authority (BaFin) and the European Securities and Markets Authority, said people familiar with the matter, who asked not to be identified before the process starts.

The industry already sounds fed up with the new regulations.

“Practice shows they are too unwieldy and such a high level of consumer protection isn’t actually required,” said Dirk Wehmhoener, co-head of Berenberg Bank’s German wealth management business.

At the start of the year, the new rules changed everything from how investing giants pay for research, all the way to how retail bankers speak to individual clients.

They were intended to stop banks selling products that clients did not need or understand, but they may have backfired.

Instead of encouraging investment with more transparency and better consumer protection, the rules are so time-consuming that clients are shying away from putting their money to work at all, bankers said.

Germany has been especially hard-hit given many individual investors there still place orders by phone.

“You’d think this would just push many people to online brokerages, but the German Mittelstand entrepreneurs we cater to place a lot of value on the personal touch,” said Thomas Nicht, who deals with MiFID II at the National Association of German Cooperative Banks.

The Mittelstand is the mass of small and medium-sized companies that make up the backbone of the economy.

Deutsche Bank AG and Commerzbank AG, Germany’s biggest publicly traded banks, said that MiFID II hit their first-quarter revenue, and analysts expect at best a minimal increase in their commission and fee income this year.

That is particularly painful because both badly need to find alternative sources of revenue in the face of record-low interest rates and rising competition.

Bankers say they want experienced investors to be able to opt out of some layers of consumer protection, such as cost disclosures that have to be made each time they buy or sell a security.

It would also be “an enormous relief” if banks did not have to record calls with clients when they discuss securities, Wehmhoener said.

Germany’s watchdog has promised “sensible market standards,” BaFin executive director Elisabeth Roegele.

However, a scheduled review of how MiFID is working does not start until early 2020. Some banks are not willing to wait.

Barely three months into MiFID II, Volksbank Sprockhoevel decided it did not want to go through so many disclosures on calls with active investors.

Instead, the lender with 25,000 clients sent customers a standardized, one-time letter laying out the costs of buying or selling securities.

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