14 June 2017
Reporter: Stephanie Palmer

European regulations still causing confusion

The regulatory environment is breeding change, and complication, for both investors and fund managers, according to panellists at Fund Forum International in Berlin.

Euan Munro, CEO of Aviva Investors, suggested that, globally, the second Markets in Financial Instruments Directive (MiFID II) has “complicated the picture”.

While Munro noted the importance of the directive’s main objectives of transparency and investor protection, he also conceded that actually implementing the legislation is “incredibly complicated”.

He warned, specifically, against the potential unintended consequences of the directive and the possibility that some investors may end up receiving worse-quality counsel. He referenced the “race-to-the-bottom” in fee structures following the implementation of the Retail Distribution Review in the UK, in which the only aspect considered is return outcome, not risk outcome.

Taking responsibility for a fund is critical, Munro added.

Within the current regulatory landscape, investor solutions are changing. Another speaker, Jamie Hammond, UK CEO at AllianceBernstein, said they have evolved, and will continue to do so.

Investors have different appetites for risk and return, Hammond said, and firms should assess them individually and come up with a solution that meets their needs.

Finally, Julie Patterson, director of asset management and regulatory change at KPMG UK and moderator of the session, asked panellists whether new transparency and disclosure requirements are actually helping the end investors in real terms.

On this topic, Neil Carnegie, founder of Carnegie Fund Services, suggested that, of all the investor disclosure documents and prospectuses that are produced, only about 15 percent is actually ever read.

Some of these prospectuses can run into more than 200 pages, Carnegie said. He called a lot of the information “stale and repetitive” and questioned whether it is of any use in helping the adviser or investor to understand what the product is.

In a later panel discussion, Peter Nonner, managing director at FIL Fondsbank, suggested that in the new distribution landscape under MiFID II, independent financial advisers (IFAs) should consider changing their business models and move “away from pure commission-based models to service fee models” to “show added value to their clients”.

From a legal standpoint, Dr Edgar Wallach of Hengeler Mueller added to this, noting that under the new directive, inducements “can only be justified if it can be demonstrated that it is in consideration for enhanced quality of services”.

Wallach went on to question what this advanced quality of service actually means. If IFAs would like to receive ongoing commission in the future, they could offer third-party products or portfolio monitoring services.

He reminded delegates that IFAs are not directly subject to MiFID II rules, but added that they are indirectly affected because of the data collection requirements for fund platforms, which have to verify that products are being sold in line with the distribution strategy.

IFAs are “already an integral process of the target market supervision”, he said.

Another panellist, Dr Christian Dicke, CEO of Fondsdepot Bank, took a generally positive view of MiFID II, saying: “In all the threats there are also opportunities”

Firms are investing in order to stay compliant, and to meet cost transparency and product governance requirements, they need robust IT systems.

Within the whole industry, but particularly among small- and medium-sized banks that may not have invested so much in the past, “this is a small technology revolution”, Dicke said.

More regulation news
The latest news from Asset Servicing Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Aquis launches SI hub for MiFID II compliance
17 January 2018 | London | Reporter: Jenna Lomax
Aquis Technologies has launched a connectivity hub to meet with the new MiFID II stipulations
AQ Metrics authorised as ARM by Central Bank of Ireland
08 January 2018 | Dublin | Reporter: Jenna Lomax
The Central Bank of Ireland has authorised AQ Metrics as an approved reporting mechanism
Industry participants react to MiFID II
05 January 2018 | London | Reporter: Jenna Lomax
After MiFID II went live two days ago (3 January), industry participants share their views about what it actually means for the industry going forward
MiFID II goes live
03 January 2018 | London | Reporter: Becky Butcher
The second Markets in Financial Instruments Directive (MiFID II) has now become effective as a part of EU legislation
ESMA delays LEI requirements for MiFID II
22 December 2017 | Paris | Reporter: Becky Butcher
The European Markets and Securities Authority (ESMA) has issued a delay to the enforcement of the LEI requirements for the MiFID II
EFAMA welcomes EC proposal
21 December 2017 | Brussels | Reporter: Becky Butcher
EFAMA has welcomed the European Commission’s proposal for a directive and regulation to establish a self-standing prudential regime for investment firms
Euronext’s ARM and APA approved
14 December 2017 | Paris | Reporter: Stephanie Palmer
Euronext has been approved by the French regulator to provide approved publication arrangement and approved reporting mechanism services to investment firms in Europe, under MiFID II
More regulation news