25 February 2019

Andrew Bailey keynote speech on MiFID II at the European Independent Research Providers Association

MiFID II came into effect almost 14 months ago. It represents a major piece of post-crisis regulatory reform, that has strengthened standards across financial markets, and the investment firms that offer and intermediate services.

As part of these reforms, MiFID II completed the long journey from bundled commissions to a framework that requires a clear separation by asset managers between execution and research payments.

One principle of the reforms is to ensure that portfolio managers act as good agents in the best interests of their client – and that their discretionary investment decisions are not unduly influenced by third parties.

This is consistent with the FCA’s focus, including in our Asset Management Market Study and subsequent remedies work.

In tandem, MiFID II seeks to improve transparency, reduce potential conflicts of interest, and promote competition by unbundling brokers’ activities.

I’m keenly aware of how important these reforms are for each of you, and the real-world impact this has had on your businesses.

Today I will focus my remarks on three areas:

First, what positive impacts have we seen in the initial implementation of MiFID II?

Second, what are the challenges and concerns that we have heard?

Thirdly, I’ll outline what we are going to do, and how we see competition evolving in the research market.

I hope to leave you with a clear sense that we maintain strong support for the reforms. We will continue to supervise compliance with our rules to ensure improved conduct standards and value for money for investors.

At the same time, we are keen to ensure effective competition in this market and will listen carefully to concerns about possible barriers to it.

The unbundling of research remains one of the most debated aspects of MiFID II.

Other regulators around the globe are looking on with interest at how things are developing here, and we have heard that asset owners outside the EU are putting pressure on asset managers to unbundle research from execution costs, to follow the example set in MiFID II.

Overall, we consider that the rules are already having a positive impact.

We are seeing changes in behaviour which are starting to deliver the intended effects – reducing conflicts of interest, improving accountability and producing cost savings for investors.

It is also clear that the market is still evolving, and that we quite likely have not yet found the right pricing equilibrium for research – or felt the full benefit of competition – in a market which was previously characterised by opaque pricing and weak competition.

The new framework is designed to increase accountability but to be fully effective it relies on, and seeks to promote, a competitive market for research.

Competition creates winners and losers – this may mean some consolidation in parts of the market and, hopefully, new opportunities for those offering the best products and services.

We want to see independent research providers continue to play a key role in this landscape and will listen carefully to your concerns.

Full speech

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