MiFID 2: Why it is relevant for Swiss asset managers and IR professionals
Even if the final details are not clear yet, MiFID 2 will materially impact Swiss asset managers and IR professionals well before being implemented in Switzerland. Here is why and how you could prepare for this regulatory revolution (#regolution).
MiFID 2 is around the corner
MiFID 2 will have to be implemented in less than 12 months, i.e. by 3 January 2018. The EU delegated act needs to be transposed into national law by local regulatory authorities by 3 July 2017. While a further delay cannot be ruled out, we consider a general postponement unlikely from today’s perspective. Or in other words 'MiFID 2 is around the corner'.
Material uncertainties with respect to corporate access
The European Union has published the relevant delegated act in April 2016, consultation papers have been published by the FCA (UK regulator, September 2016) and AMF (French regulator, September 2016). The general direction is crystal clear: More unbundling, more transparency and more scrutiny on alleged benefits for clients from spending the latters' assets.
However, FCA and AMF papers differ in certain areas, including whether corporate access services can be paid out of client assets (FCA: no. AMF: possible under certain conditions). ESMA (European Securities and Market Authority, December 2016) continues to update their respective Q&A documents, but so far has not gotten specific on that topic. Thus, material uncertainties persist on how corporate access will be dealt with.
MiFID 2 is already impacting Switzerland
Topics of unbundling, equity research and corporate access are not yet part of the upcoming Swiss regulation that covers MiFID 2 relevant topics (FINIG, FIDLEG). Nonetheless, even if the implementation of the relevant MiFID 2 rules in Switzerland is not expected before 2019, the spill-over to Switzerland will be swift – driven by larger investment managers – long before the actual implementation.
The reason for this is quite obvious, if one considers the practical challenges of the larger Swiss players:
- European Asset Managers (i.e. UBS AM, Pictet AM, LODH AM and the like) are subject to restrictions in all jurisdictions they are active in.
- At the same time, investment management is increasingly international, e.g. a trade in Swiss equities for a Swiss fund might well be best executed in London by the trader in the UK subsidiary.
Consequently, in order to avoid the increasingly expensive fines related to regulatory breaches, the also increasingly big compliance departments of the large asset managers apply the toughest local standard across the group.
This actually has already started in 2016 with most of the larger Swiss players making some assumptions on what MiFID 2 will actually look like and implementing it across the group. We expect medium sized players (operating not only in Switzerland) to follow the same path over the coming quarters. In turn, this might force the service providers (i.e. brokers) to adjust their operating model to the new environment, since catering to Swiss smaller players only will probably not be a viable option any more.
How to prepare for these regulatory changes?
Asset Managers: Use own P&L or brace yourself for more admin
There are two options: One option would be to use your own P&L, i.e use the fees directly paid by your clients to buy respective services (research, corporate access) or produce them internally.
Alternatively, there might still be possibilities to pay for respective services out of client assets, but they will be increasingly limited and come with quite onerous transparency and reporting requirements.
Corporates: More active Investor Relations
Research coverage: Less top-line for the brokers will likely result in reduced research coverage. IR departments of smaller firms should therefore anticipate that they will have to put more work into generating content that directly meets investor needs.
Investor access: With respect to roadshows or other investor events, IR officers (independent of size of corporate) will have to devote more resources into investor targeting, reaching out, and directly communicating with them.
Proactive Investor Relations representatives should therefore generally assume a more active role in content generation and investor outreach. This will either require more internal resources or support from external providers.
Bottom line: prepare for #regolution
Even though both, research coverage and investor access might only be a minor problem or nuisance for most corporates in 2017, a mindset shift towards new technologies and approaches can be observed. Proactive investor relations departments are already experimenting in order to have a plan ready for the time when MiFID 2 will actually change the environment as massively as some industry observers believe, i.e. the #regolution materializes.
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