Mifid II: One year on
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The European financial services industry underwent its biggest regulatory overhaul in more than a decade with the introduction of the revised Markets in Financial Instruments Directive (MiFID II) on 3 January 2018. The legislative package introduced significant changes to investment firms and financial markets, including enhanced “inducements” rules governing the payment for investment research. Additionally, MiFID II introduced new trade-transparency requirements in equity and fixed-income markets, strengthened requirements for the provision of investment advice, and enacted new product governance rules. Most notably, the changes to portfolio management inducements rules disrupted the provision of investment research. Under MiFID II, providers of research, such as investment banks and brokers, are required to set prices and charge for research separately from trading costs (commissions and spreads). Investment management firms—users of research— have had to determine whether to absorb the cost of research or to pass on those costs to clients. The changes broke the historical business model of investment firms bundling research with transaction costs, which are deducted from the client’s account.
