Final MiFID II unbundling rules leave no excuse for delay

Research providers and industry participants agree the final rules on unbundling provide enough clarification for firms to meet the deadline.

The FCA’s recently published final MiFID II rules for commission payments have provided enough clarity that firms should be able to meet the January 2018 deadline, research experts have agreed.

Industry reactions to the final policy statement have suggested with no major changes to the rules, the separation of execution and research services will be implemented successfully across the buy- and sell-side.

“There is a sense of déjà vu to these final words from the FCA on inducements relating to research. In fact, these standards don't look a whole lot different than current good practices using CSAs.

“That said, fund managers will no doubt welcome clarity on which services do or don't count as execution services, and some relaxation around RPA administration is also helpful,” said Jack Pollina, global head of CSA and RPA services at electronic broker ITG.

Similarly, co-founder at Electronic Research Interchange (ERIC), Chris Turnbull, said the final unbundling rules provides everything research providers and asset managers need to act on investment research under MiFID II.

“There can be no further excuse for delays. Asset managers who do not have agreements in place after the January implementation date may be cut off by research providers,” he warned.

The FCA’s final rules on unbundling clarified which services would be deemed execution-related and therefore subject to unbundling requirements.

It said “activities inherent to facilitating an order and that take place between the point at which an order is received and executed by a firm, and the final settlement” are considered inherent to the execution process.”

Pollina added the basic takeaway from the statement “remains the same: firms have to pay for research and execution services separately - putting the onus on those service providers to really prove their worth.”

Ensuring buy-side firms have good and strong relationships with their research providers will be imperative to meeting the January 2018 MiFID II deadline.

Vicky Sanders, co-founder at RSRCHXchange, explained the FCA’s final rules make it clear that firms should have agreements in place before they receive research services.

“Some of the heaviest lifting ahead of a buy side firm will come from putting arrangements in place with all of its research providers,” she said.

However, other market participants have warned the final rules from the FCA could see further distinctions and tweaks to various aspects of MiFID II, despite there being just six months until the deadline.

“This final guidance from the FCA suggests that the UK regulator may yet add further nuances, which will add additional complexity to MiFID II rules for European financial institutions,” said Phil Lynch, head of markets, products and strategy at SIX Financial Information.

“The UK would not be alone, as other local authorities are also establishing local definitions…. This is why the industry needs to find a way to develop standardised approaches that can be shared, automated, and scaled to a higher degree. Only then will firms be able to interact together using the same information,” he concluded.