10.26.2017

FCA Welcomes US Decision On Unbundling

The FCA welcomes the announcements made today by the European Commission and the US Securities and Exchange Commission (US SEC) in relation to the MiFID II inducements and research reforms and their interaction with US regulation. MiFID II requires EU portfolio managers to either bear research costs directly from the firm’s own resources, or, if they choose to charge clients for research, adequately disclose and account to their clients for that expenditure

Andrew Bailey, FCA

Andrew Bailey, FCA

Andrew Bailey, Chief Executive Officer at the FCA, said:

“I am grateful for the constructive conversations with the European Commission and SEC over recent months, culminating in today’s announcements. The outcome represents a flexible solution that respects the integrity of both regulatory regimes.”

The clarifications provided by both the European Commission and SEC staff will address key concerns raised with the FCA by UK market participants. They ensure that firms can continue to access US research from 3 January 2018, while also maintaining the investor protection safeguards of the MiFID II regime.

In supervising the MiFID II inducements and research provisions, and cross-border practices by firms in this area, the FCA will focus on ensuring investors’ interests are advanced. Arrangements which comply with MiFID II and other jurisdictions’ rules, while enabling EU firms’ continued access to research produced by US and other non-EU jurisdictions are likely to be the best way of serving investors.

The European Commission and US SEC staff statements enable this. Arrangements in which a UK asset manager pays the EU entity of a broker for global research content, or research is circulated within a buy-side group, can also be an acceptable way of achieving this, provided that they do not influence the firm’s order routing decisions, execution costs and ability to act in its clients’ best interests.

We will continue to engage with firms on their implementation of MiFID II ahead of the 3 January 2018, and will monitor evolving market practices once the new rules are in effect to ensure compliance and evaluate the impact of the changes.

Source: FCA

Statement from the European Commission:

Today, the European Commission has issued guidance in the form of Frequently Asked Questions to clarify how EU investment firms should interact when they seek out brokerage and research services from broker-dealers in non-EU countries.

Valdis Dombrovskis, Vice-President in charge of Financial Stability, Financial Services and Capital Markets Union, said: “With the issued guidance EU firms will have greater clarity on how to deal with non-EU brokers that provide research. In this context, we welcome the decision of the staff of the U.S. Securities and Exchange Commission to simultaneously agree to relief for US brokers supplying research to EU firms. Our coordinated action again shows the excellent EU-US cooperation in international financial regulatory matters.”

The Commission recognised the need to clarify how firms subject to the Markets in Financial Instruments Directive (MiFID II) can obtain such services from other jurisdictions. The Commission FAQ notes the relevant provisions and explains how EU firms can procure international research and brokerage services in full compliance with their obligations. MiFID II is a cornerstone of the reforms we put in place following the financial crisis to improve investor protection and the transparency and oversight of financial markets. Today’s initiative will contribute to ensure that research budgets are decoupled from brokerage, in compliance with the requirements laid out in MiFID II.

Source: European Commission

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