Analysis of the current profiling approaches of the major belgian private banks: compliance and evolution aspects

Abstract

In 2004, the European Parliament and Council adopted the Markets in Financial Instruments Directive (MiFID). This directive has a big impact for investment companies, which are now required to profile their clients and acquire several pieces of information about them. Even if the directive has a very noble range of objectives, it suffers from a lot of criticism due to its high margin for interpretation. Each financial institution uses its own profiling approach and its own questionnaire, which can be very distinct from its competitors’. What is the situation in Belgium, and more precisely in the private banking industry, an increasingly important sector? Does the lack of precision of MiFID lead to divergences in the profiling approaches used by the major Belgian private banks? Do those institutions respect the compulsory criteria highlighted by MiFID?

Based on my research in the theoretical part, I established an assessment grid bringing up the compulsory criteria of the legislation and extra criteria, not obligatory but justified by the literature or additional guides. Then, I conducted interviews with the major Belgian private banks and drew up an evaluation of their profiling methods. I also filled out the profiling questionnaire in each institution in order to observe if the risk profiles obtained are equivalent. Finally, in each bank, I acquired some information about the offer of products corresponding to the risk profile obtained, in order to see if there are a lot of divergences between them.

The results of the empirical approach first demonstrated that although improvements still need to be made, the private banks assessed respect on average the legislation of MiFID quite well. However, the majority of the private banks do not go further than what is strictly required by the directive. I also found out that the divergences between the different private banks assessed were sometimes significant, as some of them investigated in depth some criteria that others totally left out. Nevertheless, my findings confirmed that even if the questionnaires are sometimes very divergent they actually led in general to equivalent risk profiles when filled out by the same person. Finally, it came out that the offers of products are quite similar but that the proportion of the different asset classes varies from one bank to another, depending on the limits set up by each institution.