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MIFID Return of MiFID
MiFID I went live on 1 November 2007. MiFID II made its entrance on 3 January 2018, and is regarded as one of the most important regulatory initiatives created by the European Union since the financial crisis of 2008
Senior Editor Bill Boyle
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on-EU investment agencies which manage European mandates, or compete for European client’s assets, are now to be faced with more competition as clients try to
provide the same quality of transparency that they receive from investment firms in Europe.
Market Infrastructure and Transparency These instruments were previously outside the scope of MiFID. There are also new requirements for high frequency and algorithmic trading about pre- and post-trade transparency.
Product Governance MiFID II introduces new product governance requirements. Investment and financial institutions that create products, are now required to identify a target market and take ‘reasonable steps’ to distribute that product. Then what?
They must ensure that they form a product approval process which reflects appropriately their target market and the performance of the investments within their products which must also be offered on a regular basis.
Transaction Reporting Under MiFID II transaction reporting requirements are due to increase. The number of financial instruments which have to be reported is much wider under MiFID with transaction reporting now mandatory for all financial products traded on European regulated markets (RMs), organised trading facilities (OTFs) and multilateral trading facilities (MTFs).
There is also an increase in the number of products that now must be reported and the number of data fields which fall under the hammer for MiFID transaction reporting has also substantially increased.
Transaction reporting is no longer an issue just for sell-side firms, such as brokers and dealers. It also becomes an issue and the responsibility of the counterparty which initiates a transaction, typically buy-side firms.
Inducements and research unbundling This is one of the more controversial issues. As Mike Kirby, director of KB Associates says: “This has been a contentious area for investment firms. Pursuant to the MiFID II general inducement rule, most inducements, including commissions and rebates for independent advisors will be banned. This will force investment firms to review how their funds are distributed. There may be some exceptions, for example, where the payment or benefit is designed to enhance the quality of service to a client.
“MiFID II also seeks to unbundle the purchase of research from execution services. In order to ensure that the bundling together of investment research and execution services does not occur, MiFID II proposes two methods to pay for investment research: the P&L method where investment firms fund the research themselves from their own resources, the Research Payment Account (“RPA”) method where the costs of research would be funded by the client.
What should we have done by now to be ready?
Even at this late stage the obligations placed within MiFID II pose a serious challenge to investment organisations particulalry since there is no ‘safety net’ after the first week in January this year. Investment firms should be estimating the impact which MiFID II will have on their organisations and asking themselves some big questions.
So what are the most significant worries over MiFID II?
www.ibsintelligence.com | © IBS Intelligence 2018
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