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Asset managers in France and Germany are pushing for a change to European rules on investment research payments, setting the stage for an early post-Brexit clash between UK and EU financial regulations.
The French and German investment trade bodies, which represent fund groups that oversee assets of more than €9tn, have broken ranks with their counterparts in the UK to lobby for revamping the EU’s landmark Mifid II regulations.
Mifid II, which came into effect in 2018, forced asset managers to separate the cost of research from trading commissions paid to brokers, a process known as unbundling, with the aim of curbing inducements and conflicts of interests. The rules are controversial, with critics arguing they have a detrimental effect on research coverage and quality, particularly for small and midsized companies. This debate has been reignited by the European Commission’s review of Mifid II, which paves the way for potential changes to the research rules.
Should the EU push ahead with an overhaul of the framework, it would place Brussels in direct opposition to the UK. Britain’s Financial Conduct Authority was the main architect of research unbundling and has broadly defended the effectiveness of the rules since they came into force, making it likely to retain the regulations once the UK leaves the EU.
The divergence in the attitude of continental European and UK asset managers to research unbundling is laid bare in their responses to the EU’s consultation, which closed last week.