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Markets and Securities Services | Issue 46
6
Impact of the UK’s vote to leave the EU
In the UK, MiFID II looks set to stay following the
results of the referendum on EU membership on
23 June 2016. The Financial Conduct Authority
(FCA) immediately clarified its position,
stating that “firms must continue to abide
by their obligations under UK law, including
those derived from EU law and continue with
implementation plans for legislation that is still
to come into effect”.
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As MiFID II is due to take
effect from 3 January 2018, which is expected
to be before the UK leaves the EU, the clear
message is that firms should continue with their
implementation efforts.
That said, the UK’s decision to leave the EU
(or “Brexit” as it is called) will naturally cause
some asset managers operating in the UK to
divert some of their attention away from MiFID II,
focusing their efforts on communicating with
clients to maintain investor confidence while
closely scrutinising investment performance
and risks in the wake of market uncertainty
and potential illiquidity. Asset managers,
in common with other regional and global
financial institutions, will no doubt carry
out a strategic assessment of the possible
impact of Brexit on the evolution of their
operating model, product range, client base
and distribution networks. From a regulatory
perspective, the longer-term impacts of Brexit
and what that means for the overall regulatory
framework in the UK will depend on the future
relationship that the UK ultimately negotiates
with the EU. However, firms operating in the
UK should consider the impact of Brexit within
the context of upcoming regulatory changes,
such as MiFID II and Packaged Retail and
Insurance-based Investment Products (PRIIPs)
Regulation, to identify possible implications for
their operating models and business strategies
under the various Brexit scenarios.
Product manufacturing and distribution
The enhanced requirements under MiFID II mean
that asset managers will have to review their
product approval and monitoring processes, and
their interaction with distributors. The key areas
ASSET MANAGERS AND
MiFID II’s INVESTOR
PROTECTION REQUIREMENTS
The revised Markets in Financial Instruments Directive (MiFID II) will
introduce for EU asset managers a plethora of new requirements that will
have a fundamental impact on managers’ operating environment and
how they interact with their trading counterparties, clients, investors and
distributors. While there has been much debate on the effects of MiFID II
on the trading landscape, this article focuses on the investor protection
requirements and their potential strategic and commercial implications
for distribution models and product offerings. Asset managers will face
particular challenges when implementing the requirements of MiFID II
across areas such as product governance arrangements, costs and charges
information, reporting to clients, and applying the new inducements regime.
The new rules in these areas may affect not only compliance arrangements
and operational processes but also business models and marketing
strategies. This article sets out some of the key commercial and strategic
challenges asset managers are likely to face over the next 18 months as a
result of the forthcoming regulatory changes.