“The Research Hurricane is Coming”

MPI Europe has published the results of their annual market wide survey for research commission unbundlingin the run up to the MiFID II regulatory deadline.

All agree the research hurricane is coming, but firms are split on how best to weather it. The
way research will work under MiFID II will soon be significantly different and will have a
material impact on the client relationship according to our survey. Beyond this, our survey
shows firms split into several distinct camps in terms of resolution i.e. absorbing costs or
adopting research payment accounts, and that financial institutions will need to build in
flexibility to their solutions as a hedge against continued change and uncertainty.

The  survey reinforces the market view that changes required under MiFID II for research are complex and challenging. Over 80% of firms responding marked it as a medium to high risk, with respondents believing that the significant changes required within a very short time period. In addition, firms needing to deal with the impact of non-UK regulatory requirements such as the SEC in the US have called out added complexity. At time of going to press there is also significant uncertainty that the respective regulators will come to agreement to let the US and European regulations in this area peacefully co-exist. The greatest challenge may not be getting across the compliance line in January, but having a solution that can flex and react to further market change next year without need for a full reimplementation.

Key results include:

  • Major challenge: Over 80% view research under MiFID II as a medium to high risk.
  • Finally clear requirements: Despite initial confusion, 80% of firms believe
    regulators have provided sufficient clarity on what they need to do.
  • Implementation rush: 65% of respondents believe they will have a process by the
    January 2018 deadline although they feel the market will not be fully ready.
  • Different views and uncertainty: A third of firms believe that CSA survival will
    depend on emerging market practice.

MPI surveyed a range of financial sector firms to understand the key trends, challenges and
opportunities in research unbundling under MiFID II. The survey was conducted across a four month period and received responses from over 80 asset managers, brokers and research providers. This annual survey has run since 2010 and has shown strong and increasing interest year on year.