Asset managers and banks face a shake-up in their operations within weeks when European regulations known as MiFID II come into force. However, tough disclosure requirements on how asset managers pay for third-party research clash with existing US regulations. No solution emerged from the secret meeting between the FCA and senior executives from BlackRock, JPMorgan, Vanguard, State Street and Schroders, as well as representatives from top investment banks.
Payments for research under the MiFID II rules must be separated out from trading costs so that clients understand clearly what they are being charged for. This change, known as unbundling, presents problems for managers operating in Europe when they receive research that originated from outside the EU. US asset managers are concerned that they will be blocked from freely sharing US analyst research paid for via trading commissions across their global trading operations.
The FCA’s response has been to insist that US managers must take further steps if they cannot separate out research costs and trading commissions paid to US brokers. The regulator has said that US managers operating in Europe must “fully account” for research inputs using objective benchmarks or metrics to make an assessment. The FCA has further insisted that US managers must have systems and controls to ensure that receiving research from a broker does not induce an asset manager to place trading orders with that same organisation or “give rise to any other conflicts of interest” that might be detrimental to clients.
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