What to prepare for an FCA review
The reality of our new MiFID II world
MiFID II’s unbundling requirements have greatly impacted the investment research business. The heightened focus on the quantified value of research has had – and will continue to have – far reaching effects for both the buy side and the sell side.
Who Actually Owns Procurement Under MiFID II?
In September 2019, the FCA released a review of the post-MiFID II landscape that detailed how firms implemented the new rules for research unbundling over the last 20 months. The findings show that broker lists for executing brokers have grown, but broker lists for research has remained relatively the same. In theory, this indicates that most firms are still getting the research they need despite smaller equity research budgets and the rise of passive investing. However, this isn’t necessarily a good thing – on the surface, it appears MiFID II regulations aren’t disrupting investment workflows, but in the data sourcing world, maintaining the status quo means you’re behind.
Delivering value in a competitive investment research landscape
“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’” –Warren Buffett
Measuring Quality Over Quantity
As part of the MiFID II, buy-side firms impacted by the regulations are required to create and implement a research valuation framework to track, value and pay for consumed research. This has resulted in an increased focus on the quality of content consumed, including research reports, analyst models and corporate access events. While investment managers continue to rely on comprehensive usage and consumption data from providers as part of their valuation framework, it’s no longer simply about the quantity of research consumed. They are looking for new ways of consuming and evaluating the research they receive to bring a greater focus on the quality of that content.
MiFID II causes shifts in acquiring investment research insights
McKinsey & Co. released its annual review “North American asset management in 2018: The New Great Game” on November 15, 2018, and in pointing out that the industry is undergoing a major shift, the report’s primary message is that the gap between the best and worst asset managers continues to widen. Interestingly, it appears the growth gap favored the very large ($1 trillion or more in AUM) and the very small (less than $50 billion in AUM).
Everything you need to know about email classification
In recent conversations with clients, there is a growing interest in real-time tracking of research delivered from the sell side, as monitoring inducement risk is prioritized under MiFID II. Clients have highlighted that the majority of research consumption occurs through the email inbox, an exceedingly difficult channel to monitor. How do you monitor your investment team’s inboxes? Are you able to answer basic questions, such as:
Creating an investment research valuation methodology
The Financial Conduct Authority (FCA) is being fairly lenient after the implementation of MiFID II, announcing that they won’t take immediate action against firms as long as they are moving toward full compliance. That being said, the FCA has also noted they will take action against any firm that is deliberately disregarding the rules of MiFID II.
How to Avoid Inducements Under MiFID II
By now any buy-side firm that is affected by MiFID II, which rolled out on January 3, 2018, should have a process in place for avoiding inducements during the research process. We’ve gone from the stage of preparing for the new regulation to actually implementing it. While both sides of the market continue to wait with bated breath to see how things will play out, it’s important to regularly review the process you’ve established on how to avoid inducements. Over the next year, we anticipate that processes will need to be tweaked and amended as we learn from each other.