The final regulations of MiFID II announced today are likely to lose brokers business, analysts their jobs and also hit fund managers’ profits says Cleveland & Co Associates, the boutique legal advisory business.
Among the new regulations of MiFID II, which are due to come into effect in January 2018, is a requirement for investment banks to be more transparent about their costs. Banks and investment managers will be forced to disclose specific fees to their clients – such as fund and asset managers – for research. As it stands, banks include research costs into trading commissions that are charged to clients.
Emma Cleveland, Managing Director of Cleveland & Co, comments: “MiFID II is likely to hit analysts hard – it could be that research teams within banks shrink significantly.
“Transparency in itself is a good thing, but at what cost? Unbundling research from commission means banks increasing charges to the clients, and could ultimately result in lost business for banks.
“Naturally, this could force the banks to streamline their research, potentially putting analysts’ jobs at risk.
“If fund managers want to continue receiving valuable research from banks, they will be forced to reallocate more resources to pay for it which will hit profits.
“With only six months to go until the rules are enforced, asset management businesses and many more will have little time to absorb the information and put it into practice.”
Under the new regulations, investment managers will need to reconsider how they pay for research. They will have a range of options, including paying research costs themselves (which is difficult for smaller fund managers); setting up a research payment account, funded through fees charged to the investment firm’s clients (which will be a separate charge); or through commission sharing arrangements.
