08 Mar MiFID: The Story So Far
New year, new regulations: MiFID II is up and running
After almost a decade of discussion, debate, uncertainty and a healthy amount of trepidation, on 3 January 2018, the revamped MiFID II – the second markets in financial instruments directive – was implemented throughout the European Union.
What is it going to accomplish?
The directive’s aims are simple: create a greater level of transparency throughout financial markets operating in the EU; enable greater access to these markets; and, in turn, create more accurately-priced markets. The first aim is the one that provides the most impact for the ordinary investor and for firms operating within the industry. Greater transparency now means that all information relating to charges or costs within a financial product has to be disclosed.
One area of controversy has been research fees. Previously, research fees were bundled into general trading or administration costs. Now, however, research provided to fund managers must be charged and either paid for by the fund managers or the costs passed onto customers.
Since MiFID II’s introduction, all fees related to the management of an investment product have to be unbundled and shown separately, so that customers know exactly what they’re paying for. According to Moody’s, this may lead to a reduction in customer fees and may even signal greater moves to passive funds.
The story so far
So, after all the build-up to its introduction, what effects has MiFID II had in the first few weeks since its rollout? The initial assessment seems to be that business is operating as usual. Any fears of falling trading volumes or companies running afoul of the new regulations and being punished seem to be unfounded. Although trading volumes in the first week of January were down, this is not unusual, and cannot be blamed solely on the new directives.
Furthermore, several delays have been granted in applying the new rules, with UK and German financial authorities allowing three exchanges to defer implementation of rules designed to promote more ‘open access’ in derivative trading until July 2020. The European Securities and Markets Authority (ESMA) postponed the release of information which relates to limits on trading in ‘dark pools’.
Although deferring compliance to the new rules has been allowed in several cases, some instant effects have been witnessed from the introduction of MiFID II. Figures recently released thanks to the new rules have shown that the total cost of investing in some of the UK’s most sought-after funds could actually be significantly higher than previously thought, once all costs are disclosed. Research within the industry has also been impacted, with fund managers seeking to cut their research budgets across the board and many offering discounts on research to maintain working relationships.
The changes that MiFID II has brought about present new problems and challenges for companies operating in the investment industry. Costs for fund managers look set to increase as they seek to remain competitive by internalising the costs related to the management of investment products.
In an increasingly competitive landscape, firms need to continue to attract customers to invest in their funds, especially now that all information must be divulged. Moreover, compliance means that all information and communication about financial products must be understandable and readily accessible. This is to be applied equally across the 28-member bloc of the EU, with its 24 official languages.
Translating all this information into every relevant language and across every platform in order to ensure conformity with the rules can become a real headache for investment firms. Companies have to juggle the various demands of cost-effectiveness, adhering to regulations and continuing to appeal to potential investors.
An ability to communicate properly and in a cost-efficient manner will allow firms to maintain their competitiveness and thrive within the investment industry.
Finding a solution
Firms may feel that they are effectively communicating with their customers, but with such a wide array of individuals to speak to, are they capturing the differences in language, culture or even financial understanding that can distinguish their customers from each other? And are companies making sure that all of their customers thoroughly understand the information provided?
The answer is ambiguous, especially for investment companies. This industry is rife with experts who know what they’re talking about but may not be able to understand how to convey or translate information to their client base.
This presents a unique opportunity for firms to combat this disparity by using an expert language services provider to get the right information across. By utilising experts in communication across different languages, content type, platforms and media, companies can cost-effectively translate their communications in order to transition to MiFID II compliance and maintain their standing within their respective industries.
Utilising a language services provider can not only be economical but can be more efficient and can also showcase expertise. Although the introduction of MiFID II has brought about unique challenges for the investment opportunity, it has also brought about opportunities. If asset managers can harness these opportunities and use them to benefit, then perhaps MiFID II will not be as much of a headache as was previously thought.