The reworked set of rules – which were voted through by the European Parliament last night – are designed to better regulate capital markets in the wake of the financial crisis and ensure that trading, wherever appropriate, takes place on regulated platforms.
The IMA said it accepts the final text will deliver significant improvements to current practice that are in the interests of investors and allow improved market stability. However, the Fund Platform Group (FPG), an industry association that aims to ensure coordination between fund distribution platforms worldwide, has also voiced some reservations about the unintended consequences on retail investors, the group the directive is primarily concerned with protecting.
Edouard Bokuetenge, FPG chairman said: “While we believe MiFID II is largely a positive development for the harmonisation of the fund distribution market across Europe, it will undoubtedly complicate things for retail investors. From 2015, they will have to pay for advice, products, execution of their order and potentially deal with several counterparties. This will clearly hinder their access to financial products, reinforcing a growing trend of reluctance to use financial advisers due to increased complexity and cost.”
He added: “While far from perfect, the current architecture used across the majority of continental Europe, which is based on retrocessions, allows distributors to offer advice to clients in compliance with MiFID rules. This would in many cases be terminated under MiFID II, to the detriment of the retail investors.”
He conceded that in some respects the future role to be played by the European Securities and Markets Authority (ESMA) in the creation of level 2 legislation may alleviate these concerns: “However, as FPG members actively distribute products on a cross-border basis, the introduction of too many different rules will ultimately act against the interests of the parties that the EU institutions have been so keen to defend, the retail investors.
“While there is still a long way to go until implementation, we are currently working with our members to prepare for this new environment and seek to support institutional and retail clients once MiFID II becomes a reality.”
The FPG has members representing 20 fund distribution platforms across Europe, with over €1.5trn of assets under distribution agreement.
Under MiFID II rules have also been established aimed at enhancing the effective consolidation and disclosure of trading data through the obligation for trading venues to make pre and post-trade data available on a reasonable commercial basis.
The regulations also aim to address some of the issues that have been raised by algorithmic and high frequency trading (HFT) by imposing information requirements, the presence of robust controls, and requiring algorithmic traders to register as an investment firm.
The plan is for the text of MiFID II to be translated into all European languages and published in the official journal of the European Union (EU). National regulators will then be required to transpose the rules into their national law, which could take up to two years.
