France’s financial watchdog looks to revive declining research market under MiFID II

France’s AMF makes key recommendations for changes to unbundling under MiFID II, after forming a task force to explore ways to mobilise the research marketplace.

The Autorité des Marchés Financiers (AMF) has published a new damning report on the impact of MiFID II’s rules on the unbundling of research in Paris, and has provided recommendations on how the market could be revived.

For the study, the AMF surveyed market participants across the buy- and sell-side and found that respondents almost unanimously agreed that MiFID II has had some form of negative effect on research, particularly in terms of the quality and reduction of coverage in small and mid-cap securities.

France’s regulator has been upfront about its concerns about MiFID II’s rules on research, even calling for European authorities to review the requirements. In contrast, the UK’s Financial Conduct Authority (FCA) said early last year that it is yet to see evidence of the negative impact of unbundling, despite concerns being raised by regulators across Europe.

“Since implementation, we have watched for changes in coverage of smaller companies. I think the evidence is, so far, inconclusive, and does not suggest the dramatically negative impact that some predicted,” former FCA chief, Andrew Bailey previously said about the issue. “Overall, we consider that the rules are already having a positive impact.”

The AMF has now countered in its study that fundamental differences in UK and French markets, specifically in terms of the UK’s “strong local corporate brokerage culture”, has preserved coverage of small- and mid-cap securities in the UK, while France and other countries in Europe have been more susceptible to the damaging impact of unbundling.

Other key issues with the reforms highlighted by the AMF include the ongoing unclear pricing of research in the market, lack of clarity on corporate access practices, and a ‘juniorisation’ of analysts.

The report was authored by the AMF’s task force, formed in July to explore concrete ways to mobilise the research marketplace and improve the deteriorating situation, led by Jacqueline Eli-Namer, an AMF Board member, and Thierry Giami, president of the French Society of Financial Analysts.

The task force has recommended various methods to revive the research market in France, including plans to introduce a research marketplace to increase supply, provide financial support for the production of research, simplify corporate access rules and loosen requirements around trial periods.

“The measures governing research funding introduced by MiFID II have severely undermined a number of participants. The segment of small- and mid-caps, which suffered previously from very scarce coverage, is in an even worse situation,” the AMF’s task force said in conclusion. “Strengthening the production of equity research seems a realistic objective. The forthcoming discussions on a review of MiFID II point to opportunities for adaptation.”

Earlier this month, multiple large trade associations in Europe called on policy makers to amend other aspects of MiFID II ahead of a review of the rules. The groups, led by the European Forum of Securities Associations, agreed that reporting on best execution, systematic internaliser regime, and increasing market data costs must be prioritised for the upcoming review. 

The European Securities and Markets Authority (ESMA) confirmed in November that it would take a staggered and focused approach to the upcoming review of MiFID II. Steven Maijoor, chair of ESMA, acknowledged MiFID II has achieved some of its goals, but recognised there are areas where improvements may need to be considered.

Maijoor added that over the next few months, the industry should expect several key consultations and review reports, specifically on the MiFID II transparency regime, including the double volume cap, derivatives trading obligation and SI regime.