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Jul 02, 2019

Mifid II continues global spread, albeit with regional nuance, says expert

US supports unbundling and increased transparency, but debate remains over payment mechanism

The internationalization of Mifid II continues apace, especially in the US, albeit with a regional slant, according to a leading expert on the issue.     

‘The roll-out of Mifid II as a de facto global standard continues – with the caveat that there are, of course, nuances in every market,’ Michael Hufton, ingage managing director, tells IR Magazine. ‘It is clearly gathering pace in the US: 450 buy-side, sell-side and regulatory attendees at the Unbundling Uncovered conference in New York in June is a good indication of the level of interest, apparently including the SEC in the audience.  

‘There is very clear support in the US for unbundling and increased transparency, driven by both asset owners and asset managers. Where there is much more debate is around the payment mechanism. Full unbundling does not have to mean managers taking the costs from the profit and loss [account] – and this is where it would seem any future US Mifid II regime might differ from Europe.’   

Hufton expands: ‘Decisions will have to be taken before the existing, temporary no-action relief expires in 2020, and much of the debate focuses on what the SEC should do. Where there is much less discussion is around the practical challenges faced by the SEC. I suspect it will navigate very carefully to come up with a workable solution within the current legal framework, as the division on Capitol Hill makes the prospect of passing any new legislation unlikely. 

‘What’s interesting, though, is that the issues [US organizations] see are really not very different from what large corporates in Europe see – and they want to explore new solutions to help them adapt to the change and thrive in this new environment.’  

On broader changes as a result of Mifid II, Hufton observes: ‘We continue to see material shifts in market behavior and what people perceive to be best practice. It isn’t a cliff edge, but a continuous process of change – and it is gathering pace.’

Within the UK, the forthcoming Financial Conduct Authority Thematic Review, which was due to be published by the end of June, and is now expected at the end of July, will set out the next sets of trends, notes Hufton.

‘What we are most likely to see in the report is the calling out of examples of both best and bad practice – with the intention being to steer market behavior and eliminate extremes,’ he says. ‘This report will be important, I think, in determining the next phase of behavioral change.’