24/11/17

Asset managers have ‘one week left’ to get ready for Mifid II

(fnlondon.com)--Asset managers have one week left to prepare for one of the biggest ever overhauls of European financial regulations before they "run out of time", a senior member of trade body the Investment Association said this morning.

Preparations for the update to the European Union’s Markets in Financial Instruments Directive, which comes into effect on January 3, will stall in the run-up to Christmas as operations and technology teams wind down and start to implement code freezes on internal systems, Ross Barrett, capital markets specialist at the IA, told a Financial News breakfast briefing hosted by Yolanda Bobeldijk.

Asset managers have less time than they think, he added: "It’s almost here; we’re almost out of time already."

Mifid II is intended to make European markets safer and more transparent, and to target conflicts of interest in trading. One of the main changes for asset managers is the ‘unbundling’ of research costs paid to investment banks from the trading costs paid to banks’ brokerage teams. Fund managers will have to pay for research costs themselves or pass them to investors through separate accounts.

Investment houses will also have increased transaction reporting requirements under the new rules.

Despite the looming deadline, a number of large asset managers still have significant work to do to put in place internal processes for coping with new regulatory requirements, according to Paul Sharma, co-head of financial services advisory at Alvarez & Marsal.

Sharma, who was formerly deputy head of the UK’s Prudential Regulation Authority, said he had spoken to senior fund managers in recent weeks who "really don’t know" how far along their firm is in the Mifid II process.

He said there was "very little time" to make any changes now in advance of the new rules and advised asset managers to take stock of what they had done so far, adding: "We’re at the point now where how you communicate your degree of preparedness to the regulator is extremely important."

Asset managers have ‘one week left’ to get ready for Mifid II

Being ready for transaction reporting on January 3 is particularly important, according to Sharma. "Transaction reporting will be very visible to the regulators on day one," he warned. "Right away if the regulator sees people without plans they will be very unhappy."

Vicky Sanders, co-founder of RSRCHXchange, a research platform, agreed that the asset management industry had been slow to prepare for the new rules and added that she had expected the competitive nature of the industry to drive more urgent changes.

She said that she had seen some creative interpretations of the rules around research costs as the deadline had approached: "Some buyside firms are still saying ‘if I just pay one dollar to everyone for research then that will satisfy the regulator’. We will see the regulator look at those firms who did not follow the spirit of the rules."

The rush to price research in advance of the implementation of Mifid II has led to claims that some banks are slashing prices in a bid to secure contracts with buyside firms. The FCA told research providers it was concerned about the practice in meetings it held with them earlier this autumn.

However, the FCA has previously committed to show leniency to firms that fail to fully comply with the new EU trading rules by January. Executive director of enforcement and market oversight Mark Steward told a conference in September that it will "act proportionately" regarding disciplinary action and "not take a strict liability approach" given the complexity and magnitude of the changes firms have to make to be compliant.

But asset managers should be just as concerned about pressure from clients to comply with the regulation, the IA’s Barrett said.

"Your clients can come and get you on these rules from day one. So yes, draw comfort from the regulator’s stance, but there is no restriction on when the clients can come after you," he said.