Just weeks away from go-time for MiFID 2, but what will this mean for the financial services industry? Here are five perspectives on the legacy of this massive regulation.
In just a few weeks, the Markets in Financial Instruments Directive (MiFID 2), is set to go live. It is a giant package of reforms designed to improve investor protections by extending regulatory oversight to previously unregulated asset classes, tightening rules around what products may be sold to whom, strengthening conflict of interest procedures, and boosting the overall transparency around costs, investment advice, and trade execution.
But for all its benefits, there has also been criticism. We invited a panel of distinguished experts in the field to discuss how fund managers, advisors, and investors around the world may be affected by MiFID 2. Click here to read MiFID 2: Europe’s Magnum Opus of Financial Reform.
We asked the group: what will be the legacy of MiFID 2? Will it come to be viewed as the pinnacle of regulatory overreach or will the benefits ultimately justify the costs?
- Bella Caridade-Ferreira, CEO, Fundscape, noted that with every piece of legislation, there are always known and unknown consequences. “We probably haven’t seen half of them yet,” she said. “My concerns around MiFID 2 are about how the potential absence of a level playing field will distort the market and push people into the wrong products and wrong funds — and therefore produce poorer investor outcomes.”
- Carol L’Heveder, Head of Regulatory Affairs, Invesco Asset Management Ltd, thinks MiFID 2 will ultimately produce a more level playing field across Europe, which along with the added transparency is good for the industry as a whole. “But overall, will the benefits outweigh the costs? Is this the last piece of European legislation that’s been dominated by the FCA’s past agendas, and with Brexit will we see a different framework and greater divergence? It makes for interesting times.”
- Robert Rosenberg, Chief Operating Officer and Partner, Heptagon Capital, expressed strong doubts about whether MiFID 2 will fulfill its ambitious agenda. Without faulting its good intentions around investor protection, improving transparency, and reducing the potential for mis-selling, “I think all the unintended downstream ramifications are going to outweigh the good in the long run,” he said. “Primarily, I foresee reduced product choice for investors and possibly more concentration into the larger market players.”
- Aatif Ahmad, a lawyer who works closely with firms on their MiFID 2 plans, struck a similarly doubtful tone. “Five to ten years on, MiFID 2 will show the limits of regulation and how much regulation by itself can achieve.” He cited failing EU programs designed to promote investments in new technologies, small cap companies, and infrastructure as examples of the kind of regulatory overreach that MiFID 2 represents. “It didn’t lead to Silicon Valley in the EU, and I believe a similar fate will await MiFID 2 in terms of investor outcomes,” he said.
- Stuart Alexander, Chief Executive, Gemini Investment Management Ltd, suggested MiFID 2 will fundamentally change the landscape in which investment firms operate, both in Europe and globally. “We can expect to see a wave of business restructuring that includes consolidation or selling out of activities that will prove unprofitable in the future,” he said.
Some of the effects will be immediate, while others will take time to play out. We expect that certain impacts of MiFID 2 will only reveal themselves after the rules have gone live, and we can also predict that certain rules may be tweaked post-implementation but that the primary objectives of MiFID2 will remain.
Read more from this panel in our MiFID 2 roundtable discussion.