The European Securities and Markets Authority (ESMA) recently published the results of a mystery shopping exercise. Conducted last year under the 2022 Common Supervisory Action (CSA), it focused on the application of the rules of the revised Markets in Financial Instruments Directive (MiFID II) on cost disclosures to retail clients across EU member states. The report states that the exercise shows an “adequate level of compliance with most elements of the ex-post costs and charges requirements under MiFID II”.
There are, however, shortcomings, some of which are listed below:
• Costs are not always shown as a percentage – firms are required to show costs and charges as both a nominal amount and a percentage, but some only show the former and not the latter.
• Differing practices and lack of disclosure in inducements – firms are required to show third-party payments in ex-post disclosures but this isn’t always done consistently.
• Implicit costs are not always shown – firms are required to disclose all costs and charges, both explicit (such as advice fees and commissions) and implicit (such as transaction or structuring costs), but the exercise shows that implicit costs are not always disclosed.
According to ESMA, the mystery shopping exercise was meant to help “identify at an early stage new risks and issues” as well as “get more information on how firms applied the requirements in practice”. Following the results of this exercise, national competent authorities (NCAs) are expected to “undertake follow-up actions on individual cases”.
