The second Markets in Financial Instruments Directive (MiFID II) has “created a barrier to entry for smaller firms”, according to a panellist at this year’s TSAM London: the Summit for Asset Management.
The panellist indicated that smaller firms are at a significant disadvantage right now. He stated: “There is extra pressure on the whole in terms profitability, bigger firms find this easier, rather than smaller, growing new entrants.”
He further stated that the regulators behind MiFID II had not intended the regulation to affect small firms, but another panellist stated that this had happened and smaller sized firms have indeed suffered under MiFID II.
He said: “It has happened and pushed some firms out which could lead to less competition. Have I seen any fallouts on the buy side? No, I haven't seen that yet, as of yet, that is hard to quantify.”
Another panellist discussed the rush to data exchange he saw in Q4 2017 as opposed to the lack of data exchange in Q3 2017, where from that he was concerned. When comparing Q4 2017 to Q4 2018, he stated: “Many firms had a much more peaceful Christmas in 2018.”
One speaker indicated that six months on from MiFID II implementation in January 2018, he saw a “massive wave of reflection” in June 2018. Firms were looking at what they have implemented under MiFID II.”
He highlighted that the two main drivers of MiFID were firstly a ticking box exercise and benchmarking. Secondly, it was about going through one of two cycles of reporting and trial and error—where firms were working out what was the most expensive method while attempting to make processes more efficient.
The panel went on to discuss the Packaged Retail and Insurance-based Investment Products (PRIIPS) regulation, with one speaker affirming that the guidelines to PRIIPS are likely to change.
He said: “The guidelines are always changing with PRIIPS, regulators will always aim at making it more agile.”
One panellist said: “There is a theme of the complexity of data in the industry right now. We are aiming to keep up to speed on the technological speed of various functions, not just client reporting. As well as growing on the investment side and regulatory side, also.”
He added: “The markets haven’t fundamentally changed, I’ve seen no massive falls in liquidity—liquidity is poorly defined by trade volume, but when there is a dislocation, you should question if there are still buyers out there.”
In closing, the moderator asked both panellists their key wishes for MiFID II and PRIIPS—essentially how they would like both regulations to progress.
The first panellist said: “We had our big bang with MiFID II, a lot has happened since then. Let's try and solve the unintended consequences of MiFID II before we start putting through new regulations.”
The other panellist said: “I completely agree with that. Let’s work with the industry, to make sure there is a level of consensus before moving ahead because clearly, that didn’t happen enough with MiFID II.”
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