Resources to prepare you for MiFID II and the regulatory changes transforming the global investment industry.



What is MiFID II?

On January 3, 2018 Europe will see the update to The Markets Financial Instruments Directive (MiFID II) come into force. Focusing on core principles of the creation of fairer, safer and more efficient markets, this is the broadest piece of financial industry legislation in many years and has the potential to significantly change market structure. Firms need to understand what MiFID II is and use this time to prepare themselves for launch, explaining MiFID II regulation to key stakeholders.

Any payment for research should be justified based on a firm’s quality criteria and valuation approach. For a good or service to amount to the provision of substantive research the relevant research must:

  • Be capable of adding value to the investment or trading decisions (actionable) by providing new insights that inform the investment manager when making such decisions about its customers' portfolios

  • Whatever form its output takes, represent original thought, in the critical and careful consideration and assessment of new and existing facts, and must not merely repeat or repackage what has been presented before

  • Have intellectual rigour and must not merely state what is commonplace or self-evident

  • Present the investment manager with meaningful conclusions based on analysis or manipulation of data

Objectives of MiFID II

The Markets in Financial Instruments Directive (MiFID II) regulates firms who provide services to clients linked to ‘financial instruments’. The objectives of the regulation are to:

  • Increase transparency and protection for end investors

  • Shift trading towards structured marketplaces

  • Lower cost of market data

  • Make costs of trading and investing clear and explicit

Who Will Be Effected by MiFID II?

All European (including UK) buy-side and sell-side institutions, as well as global firms with European operations. Both the investment research industry and the investment management industry are likely to be heavily impacted. MiFID II in a nutshell has the potential to impact firms in the following ways:

  • Must sign off any use of client money to purchase research services
  • Receives regular evidence of value of research
Independent Research Providers and Broker Dealers
  • Publish clear rate card for research services
  • Deliver high quality, conflict free research services
  • Accepts payment for research separate from execution
Asset Management Firms
  • Publishes Research Procurement Policy
  • Decides on how to pay for research – P&L, Commission or direct charge Decides on providers
  • Manages budget and tracks value
  • Revaluates research providers regularly

European and Global Implications

U.K. Market Considerations

Still applies post-Brexit. Following the result of the UK’s referendum on its membership of the EU, firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for MiFID II and other pieces of EU financial services legislation that are due to come into effect in the UK.

There are also high expectations due to DP14/3 for UK investment managers to become compliant, those who have already adopted best practices in line with our recent dealing commission review (reported in DP14/3)16 should be well placed to adapt. Within the UK market there is a noted threatening undertone and threat of fines: "More work needs to be done by investment management firms to ensure they spend their customers’ money with as much care and attention as if it were their own. Where we identify breaches of our rules, we will consider further action, including referring firms for further investigation".
French Market Considerations

The market is less stringent than UK with more focus on process and principles. There is no gold-plating across firm types and macro is in/out of scope.

Germany Market Considerations

The market is more weighted to Fixed Income and while asset managers have not seen an issue with bundled services there are stronger concerns over VAT implications and master KVG implications. BaFin will implement MiFID II directives into law verbatim.

Broader Global Implications

Global organisations still need to understand what is MiFID II and how can it impact their business. 82% of surveyed U.S. firms with global operations plan to implement some form of unbundling, with Asian/Australian firms also considering implementation. Bank pricing regimes are also likely to be impacted on a global scale.

MiFID II Assessment

Does your firm have a clear MiFID II strategy?

Agreed benchmarks? A plan?

Use our tool to see how well prepared you really are. Based on your answers, we’ll give you a score and actionable advice on what to do next.