The UK’s Financial Conduct Authority (FCA) could exclude managers regulated under the Alternative Investment Fund Managers Directive (AIFMD) and UCITS from transaction reporting obligations contained in the Markets in Financial Instruments Directive II (MiFID II).
The FCA published its consultation on MiFID II in which it said it would not apply transaction reporting requirements to “managers of collective investment undertakings and pension funds at this stage.” As such, managers not regulated under MiFID will be excused from transaction reporting.
This is a welcome respite for fund managers. Transaction reporting, which has up to 64 data points, would have applied to any financial instrument trading on a trading venue. Firms would have been required to provide data on the client, trader or algorithm responsible for the trade.
The consultation predominantly focuses on transparency requirements for equity and non-equity markets. The FCA acknowledged it would consult on MiFID II issues not covered in this consultation in the first half of 2016 once European regulators have firmed up their position around MiFID II. The second consultation by the FCA will explore issues such as products, dealing commissions and fee transparency.
MiFID II is likely to be pushed back by one year from its original January 2017 deadline. A number of financial institutions highlighted they would struggle to build the internal technological and operational infrastructure to attain compliance by January 2017, particularly given the regulatory uncertainty over MiFID II.
It was also revealed through leaked documents that asset managers will be permitted to pay for sell-side research through commission sharing agreements (CSAs) providing they give investors full cost breakdowns.
The leaked transparency obligations could require sell-side brokers to clearly outline the costs of research to fund managers, something which has long been called for. The draft proposal is a shift away from the European Securities and Market Authority’s (ESMA) previous stance, which called for a full unbundling of the cost of research and trading, in what could have forced fund managers to pay directly for their sell-side research. This would have been very costly for managers and could have led to missed investment opportunities.