The compliance splurge continues with the European Union's programme designed (so the framers claim) to protect investors. This article looks at how fund management is affected.
One of the most important lumps of financial regulation to hit Europe is the Markets In Financial Instruments Directive, known rather more pithily as MiFID. The second iteration of this legislation has already been delayed by a year (now due to take effect from the start of 2018). Wealth management will be affected. One angle is the impact on distribution of investment funds. Calastone, the global funds network, weighs on the debate about the directive. This article is Rob Swann, managing director, data services, at Calastone. We hope readers find this article valuable and invite responses.
The first iteration of the Markets in Financial Instruments Directive (MiFID) was primarily aimed at the sell-side and sought to heighten transparency and boost competition. MiFID II has far more scope than its predecessor and regulates across numerous areas including commissions to pay for sell-side research, high frequency and algorithmic trading, best execution, pre and post-trade transparency, transaction reporting, inducements, client money, and of course product governance. In short, MiFID II is all about a regulatory desire for greater transparency. It is highly detailed and all-encompassing and impacts a wide range of financial institutions to which MiFID I did not apply.
The rules have been subject to repeated delays. Initial implementation of MiFID II was meant to be in January 2017. However, warnings from the European Securities and Markets Authority (ESMA) and industry participants that financial institutions would struggle to have the necessary infrastructure, personnel and technology in place to make right on their MiFID II compliance obligations, forced policymakers to agree to a one year implementation delay until January 2018. This was confirmed and formalised in the European Parliament in February 2016.
The first Delegated Acts for MiFID II were published recently. These Delegated Acts have sought to address and provide more clarity around MiFID II. While the Delegated Acts have not made any material changes to the original provisions around product governance, the fact that its status has been somewhat clarified by the EC is welcome. But what exactly are the rules around product governance under MiFID II?