Community

I particularly agree with #4 - Don’t underestimate the data challenge. It often merits, in my experience in several large banks, a remediation programme of its own

Helpfully the FCA’s recent announcement on MiFID II ( https://www.fca.org.uk/sites/default/files/cp16-29.pdf ), reconfirms the analysis above.

It clearly agrees that even the Evolution option will require process and system changes as stated above. In their latest paper they point out “Operationally, this will require changes to current Commission Sharing Agreement (CSA) accounts” and then indicate a number of conditions that need to be satisfied. They also confirm that the “hard dollar” Revolution option is consistent with MiFID II e.g. “direct payments by the investment firm out of its own resources”.

However, it still leaves the choice of where on the spectrum a firm wants to settle and how exactly it wants to satisfy the rules as being a choice for the firm. It also seems to be taking a different view from the AMF, the French regulator, which will further complicate decision making. We are seeing firms starting to be attracted to options which look at budgeting at a strategy rather than client/fund level. As the FCA notes this “may allow firms to set a budget at a desk-level or strategy level” but only if “the individual and collective portfolios subject to the budget share sufficiently similar research needs.” This may make budgeting easier but will still require a far more robust evaluation of research needs and how they are satisfied than exists in a good number of firms.

Whatever the potential approach, it is time to start implementation.

Given the sea change brexit vote since this was posted a number of people have asked whether the MiFID impact is likely to change - maybe some suggest there be delay or even an opt out for UK firms under MiFID. Well, the short answer is no - not likely. 

The longer explanation is that the MiFID II live date is within the two year period when we are still bound by EU regulation, also to do business in the EU as currently UK firms would have to comply with at least equivalent MiFID regulations and given the recent FCA announcement of regulation is business as usual, it is hard to see major changes to the research changes for MiFID II for UK firms.

I acknowledge that many firms would strongly prefer to avoid the pain that will come with a number of aspects of MiFID II whilst facing the Brexit challenges. There are also some other areas of the MiFID requirements have not been finalised. However, these are unlikely to cause delays - rather the regulations come into effect as planned but only the late defined parts have an extended bedding in period.

The best approach is surely to continue implementation programmes for research changes on the same schedule, but where possible build in the extra flexibility for change and more complex post EU exit models.