Mifid II biggest regulatory worry - Deloitte
A study has put the Markets in Financial Instruments Directive (Mifid) II rules at the top of investment managers’ regulatory concerns.
In research from Deloitte, conducted among 13 investment managers representing £475bn of assets under management, all but one said Mifid II would have the greatest impact of all European regulations over the next two years.
The rules are due to come into effect on January 3 2017. Proposed changes include the designation of certain funds, including many multi-asset vehicles, as ‘complex’, meaning a direct investor would need to complete appropriateness tests before buying.
Deloitte said it expects some asset managers to launch more ‘non-complex’ products such as Ucits in response.
Some of the firms questioned have considered restructuring their ‘complex’ products into ‘non-complex’ ones for the same reason, according to the firm.
This comes after industry bodies began to ready themselves for the overhaul.
Last month the Investment Association said it would work with the FCA to ensure the changes do not have undesirable consequences for investors.
Earlier this month it emerged that Schroders was to convert its £1.1bn Managed Balanced fund into a Ucits product, though the fund house did not explicitly link the change to the incoming regulation.
Meanwhile, Deloitte’s research revealed 65 per cent of respondents see proposed rules to unbundle investment research payments from dealing commissions as a “key strategic challenge”.
Respondents believed the changes would lead to increased scrutiny over the quality of research, but shrink research budgets. Changes to transaction reporting were also viewed as a key issue and seen as costly to implement by all firms.
David Strachan, a partner in Deloitte’s EMEA centre for regulatory strategy, said the regulation would lead to lower profit margins for asset managers.
“Increased costs are unlikely to be passed on to investors due to competition and increased transparency on costs and charges,” he added.
Mr Strachan also warned the rules could mean the emergence of a “squeezed middle”, with mid-sized industry players hit the hardest.
He said: “Larger investment managers with greater economies of scale will be better able to absorb the costs of Mifid II, and small niche firms may be less affected by certain rules.
“Managers that employ passive and quantitative strategies, which do not rely on investment research, will also be relatively less affected, although that will depend on where the European Commission comes out when it adopts the delegated acts, expected in November.”
He added investment managers would need to consider how to “optimise their business” under the new rules, with possible reactions including mergers and acquisitions or changes made to product ranges and distribution strategies.
