MiFID II May Not Ban Commissions for Research After All

MiFID II May Not Ban Commissions for Research After All

The investment industry in the UK and Europe has been very much focused for the past few months on MiFID II and the fact that these regulations would ban asset managers from using dealing commissions to pay for research.

MiFID II should be finalised in 2015 and implemented in 2017 in accordance with ESMA (the European Securities and Market Authority).

As the use of commissions is widespread within the industry, a major source of revenues for sell side firms and independent research providers, and a way for asset managers to pay for research without damaging their own P&Ls, the proposals created quite an uproar.

In addition to the expected push-back from industry participants, however, there has also been some interesting commentary from regulatory bodies. While the UK’s FCA is very much in favour of the ban (and is rumoured to have actually written the section of MiFID II that proposes it), its counterparts in France and Germany, for example, seem to be against it. The latter seem worried about a potential drop off in the quantity of research and an adverse impact on the competitiveness of the European fund management industry, among other issues.

Now it seems that MiFID II has been revised and that the banning of commissions to pay for research has been taken ‘off the table’ by European legislators, according to an FT article.

This is a significant change and could be regarded as a win for the industry and a blow to the FCA. However, even if there is no outright ban under MiFID II, there is likely to be a push for much greater transparency, more controls, and more explicit pricing of research.

It also remains to be seen what the FCA’s next move will be. It has been reported that the regulator would not push ahead with a ban in the UK on its own (i.e. without European-wide MiFID II), but could that change?

The international dimension is also interesting to consider, especially since asset management is a global business in many respects. What will be the response of the SEC, US companies, and global companies operating in the US to the tightening of regulation in Europe?

The following articles may also be of interest to readers of this blog:

Europe pulls back on research cost revamp, Financial Times.

MiFID II will not ban research commissions, Integrity Research.


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