Brexit and the implications of the second Markets in Financial Instruments Directive (MiFID II), and Alternative Investment Fund Managers Directive (AIFMD) were high on the agenda for this year’s Fund Marketing and Distribution Europe Conference, hosted at the Grange City Hotel in London on 5 and 6 February.
One of the first panels discussed Brexit and its evolving industry impact on the industry. A panellist stated there was “no safe haven yet for financial services, but the European Securities and Markets Authority’s (ESMA’s) agreement with the UK Financial Conduct Authority (FCA) gives some clarity”.
ESMA’s agreement has initiated a framework for supervisory cooperation between ESMA, the EU 27 national competent authorities and the UK FCA, in the event of Brexit. The signing was held in the first week of February.
The panellist indicated the critical role the FCA plays on both a national and international level. She said: “UK firms are a loud and welcome voice at the table right now.”
She added: “The FCA plays a huge role—writing legislation, managing incoming regulations purely for solely regulated FCA firms.”
The panellist went on to suggest that she knew a European-based investor who had just invested in a private equity fund within the UK. She said this indicated “a show of confidence in the UK market and indicates London isn’t going away in terms of being a private equity hub for the financial industry”.
She affirmed: “London remains on the map. London remains the centre of excellence. There is an innovative and positive outlook for London.”
Brexit was also mentioned in the following panel exploring the UCITS landscape.
Panellists mostly agreed that Brexit could ultimately limit UCITS sales across border funds, to which one panellist affirmed, could lead to a more bifurcated market across Europe.
She added: “Brexit means it will be harder to get a UK voice around the legality table. We [the UK] may no longer have that loud voice for decision making.”
Another panellist reminded delegates that post-Brexit, “UK UCITS will qualify as AIFs in the case of a ‘no deal’ scenario”.
A later panel in the day discussed how MiFID II has welcomed a healthy rationalisation of relationships within the industry. However, opinions differed between panellists.
Another stated: “Firms still don’t have very good data on who their distributors are, or who it is their actually dealing with. A staggered approach toward different distributors might be the answer, but that’s easier for bigger firms.”
Implemented on 3 January 2018, MiFID II regulates firms that provide any services to clients linked to financial instruments and venues where these instruments are traded.
Speakers on the panel discussed at length what should be included in a possible MiFID III regulation.
One panellist predicted: “There would probably be more inclusion of environmental, social and governance or a bigger concentration on the sustainability responsibilities of big firms.”
He added: “Beyond that, however, I don’t have a crystal ball, I don’t want the same complexity to it.”
Another said there should be a framework in place “to better compare total cost and better investor protection. But I fear a MiFID III will end up more rigid and less flexible”.
Another panellist concluded the panel, affirming: “MiFID III should drive the kind of behaviours we should have taken ourselves.”
When the time came for audience questions in this particular panel, one audience member questioned the usefulness of reports and information on transaction costs “given current constraints and diverse approaches in equities”.
The audience member added: “Sometimes, data on this is carried out four months or more after the relevant period. Is this even still in date in most cases?”
The panellist said in reply that the comment was fair and he agreed with the audience member, to an extent. But he added: “Reports are always going to be based on historical figures. The Packaged Retail and Insurance-based Investment Products might be the answer to delegate this better.”
In another panel, ‘Spotlight on AIFMD and alternative funds’, panellist discussed how effective AIFMD had been for the industry since its implementation back in 2011.
They agreed that AIFMD had changed the industry since its introduction and concurred there is a “good 50 percent blend between the use of UCITS and AIFMD, globally”.
One speaker stated: “UCITS has developed into a brand. In that respect, AIFMD has the potential to develop a similar brand. These two jurisdictions blend together, you know what you’re getting.”
But one panellist explained that she didn’t think AIFMD had benefited the industry enough.
She explained: “AIFMD was supposed to reduce overall risk with over-leveraging and it was expected it would mean more money flowing toward small and medium-sized enterprises, but this simply hasn’t been achieved.”
She added: “The question is higher transparency. But to whom? Who is benefitting from this transparency? Has it done what it was supposed to? I don’t think so.”
“I’m critical of AIFMD because it is over-the top and there’s this ‘shoes we had to fill’ notion concerning it. I know it’s only seven years old, but there’s still a long way to go before we see progress.”
The three panellists briefly discussed Brexit to which one said: “There are no panics from distributors or end investors, that I’m seeing anyway.”
She added: “There’s some hesitance to invest but not a lot. It’s largely business as usual.”
