In addition, a whole raft of asset managers have announced how they will handle research costs under Mifid II, with most opting to absorb them and a handful passing the cost onto clients.
But what about those who are falling behind? Matt Smith, founder of regulatory compliance firm SteelEye, notes the regulator is likely to be lenient towards firms that are not yet up to speed with Mifid II if they can show they are taking relevant steps and making good progress.
He says: “Across the market, when comparing larger and smaller firms, there is significant variation in their readiness, with many smaller firms that do not have the extensive operational resources of their larger peers lagging behind in terms of their preparations.”
Smith adds that while the concerns are valid, it is also worth remembering that Mifid II presents opportunities including risk reduction, enhanced communications and greater data transparency.
Unintended consequences
As with any new regulation, there is likely to be some unintended consequences as stakeholders look for the best way to navigate the landscape.
Russell Napier, co-founder of Electronic Research Interchange, fears the measures could result in a research price war as providers start to charge unreasonably low fees for research.
“While fees for a range of research services have suffered downward pressure since this time last year, peppercorn prices are unacceptable,” he says.
Napier observes the FCA’s intention to intervene if pricing reaches a stage where research appears significantly undervalued, but notes it will take time for the watchdog to act.
“The regulator will want to assess the impact of Mifid II across a variety of areas before deciding whether any remedial action might be necessary. It could take up to 18 months to determine and then intervene in a research market where the product has been undervalued, and measures should be put in place sooner to ensure a fair value for research.
“High quality research is a valuable tool that can be used to meaningfully improve investor outcomes. Devaluing it could harm the end investor, in direct contrast with Mifid II’s ultimate aim.”
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