The existing Markets in Financial Instruments Directive (MiFID) was launched in 2007, opening up competition in equity markets.
MiFID II is set to transform trading and transparency even further, although this time the greatest effects will be on derivatives and fixed income markets.
David Strachan, partner in Deloitte’s EMEA Centre for Regulatory Strategy, said: “MiFID II will increase costs and reduce margins, as the increased costs are unlikely to be passed on to investors due to competition and increased transparency on costs and charges.”
Key strategic challenges
“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."
Two-thirds of survey respondents said the investment research rules would be a key strategic challenge of MiFID II.
These rules have been a contentious part of EU negotiations; and, if implemented in their current form, would require the unbundling of investment research payments from dealing commissions.
Investment managers expect that it will lead them to increase their scrutiny over the quality of research and shrink their research budgets.
On the operations side, changes to transaction reporting were viewed as a key issue and costly to implement by all firms, due to the expanded scope of the rules.
Rise of ‘non-complex’ products
Other strategic considerations for investment managers are those around product offering and distribution channels.
The range of products deemed complex and subject to the appropriateness regime will be broadened, so that fewer products will be able to be sold on a purely execution-only basis, without any assessment of the investor’s knowledge and experience.
As a result, Deloitte expects that some firms will launch more ‘non-complex’ products, such as UCITS (excluding structured UCITS), relative to ‘complex’ products.
Some firms advised that they are even considering restructuring their existing ‘complex’ products into ‘non-complex’ ones for the same reason.
