09 January 2015

ESMA（欧州証券市場機構）によるコミッションのアンバンドリングに関する欧州委員会への技術的助言、総合証券会社に甚大な影響を及ぼす可能性

On 19th December, ESMA gave the capital markets a nice Christmas present of 1615 pages of light reading. The publication limbered up with 446 pages of technical advice to the European Commission on improving investor protection. Then came the two-part consultation on draft regulatory technical standards and implementing technical standards (1165 pages – not one to try at home). To complete the workout, there was also a reply form, coming in at 48 pages. The aim of all this is to see MiFID 2 and MiFIR go operational, as planned, on 3 January 2017.  If that timetable is met, 3 January 2017 will be a revolutionary date.

Revolutions tend to come as slogans, rather than draft legislation, but there is a reason for the rather cumbersome process of “draft” standards and technical advice – namely the maintenance of the constitutional proprieties laid down in the founding treaties of the EU. The treaties say that delegated legislation can only be issued by bodies directly accountable to council and parliament. The Commission fits that bill and it formally issues the delegated legislation so it is no longer “draft”. Council and parliament have a short period to object – but only on the grounds that the bill is not consistent with primary legislation (MiFID II/ MiFIR).

The Commission will use the Technical Advice draft to prepare its own delegated legislation. There is the potential for the Commission to reject the compromises agreed by the officials who meet “independently” in the European Supervisory Authorities – ESMA in this case. Moreover, the Commission is not formally obliged to consult on its eventual proposal but the significance is such that it would be very surprising if it did not. However, ESMA is quite clear that its draft Technical Advice is “fully compliant with MiFID II”, thus reducing any scope for challenge by the co-legislators - especially Parliament.

These are the choices that will impact directly on investors. Investors, of course, are citizens who can use their voting power to complain if they feel their savings have been damaged by rogue financial markets. This seems to have concentrated the minds of the Commission, for the points included in the technical advice draft included:

• When portfolio managers can receive research from third parties
• Requirements for firms to provide clients with details of all costs and charges related to their investment
• Information on the cumulative effect of costs on the return

Making the costs of different services transparent to clients has obvious, and potentially enormous, implications for financial intermediaries. In particular, the costs of executing a securities trade must be separated from items such as research costs. The latter may be paid by investment managers out of their own resources or by setting up a “separate research payment account” funded by the client for external research. The charge must be agreed with each client ex ante and then reported afterwards amongst the costs and charges incurred. However, the detail that seems to be required, as well as the governance arrangements, could be onerous.

This Technical Advice relates to delegated legislation that the Commission must introduce to implement MiFID II. However, ESMA points out strongly that it would be unbalanced if similar measures were not introduced for managing UCITS and AIFs.

ESMA also suggested that the Commission should “consider clarifying” the conflicts of interest within an integrated securities house that provides execution, research, underwriting and placing. To the extent that a large retail bank offers all these services to its clients via hidden cross-subsidies, the sunshine of transparent charges may well cause some aspects of bank work to shrivel if clients start to shop around for competitive services. Taken with many other regulatory changes, market forces may be about to force a revolution on the too-big-to-fail banks.

The revolution could even start next year. The Investment Association (IMA) – with 200 UK members who control £5tn of investments (three times the UK’s GDP) – has already said that it " supports the proposed requirement for brokers to offer to price execution and research separately, in order to help investment managers meet their obligations… A key part of the advice proposes the mandatory use of a commission sharing agreement (CSA) between asset managers and investment banks. The IMA will now develop an enhanced model CSA in association with an international law firm. We expect to make this enhanced model CSA freely available throughout the EU in the first quarter of 2015.”

© Graham Bishop