MiFID II is directly relevant for global asset managers that are based in Asia but have a physical location in Europe or the UK. Longer term, global firms are likely to adopt a global standard so they can operate synergistically in all their locations rather than cope with multiple rules, setting new industry best practices.
Determining the reach of MiFID II is particularly tricky in a cross-border context and deserves attention by Asian managers offering investment management services on a global basis:
- Asian firms that manage European client accounts or funds under a delegation, or sub-advisory arrangement may be subject to the MiFID II requirements. For example, in the context of research unbundling rules, the FCA in the UK has suggested that a firm outsourcing portfolio management to a non-EEA delegate is expected to “secure an equivalent level of protection for its clients under a delegation arrangement”. Although examples of ‘an equivalent level of protection’ have been provided and suggest that full adherence to MiFID II rules by the Asian delegate is not necessarily required, care will need to be taken to ensure appropriate policies are implemented, the value of research is properly assessed and other controls set (such as setting a maximum research budget)
- Asia based asset managers competing for mandates against European investment firms could also face competitive pressure to adhere to MiFID II rules as clients come to expect the level of transparency, particularly in respect of costs and charges, they are receiving from asset managers in Europe
- Asia based asset managers that have distributors in Europe may find they have to deal with much more onerous and time consuming data requests from distributors, in order that the distributors can fulfil their MiFID II obligations (for example on product governance and transparency requirements)
While MiFID II does not place direct obligations on other Asia firms, the obligations are indirect for Asian brokers and investment managers that deal with EU counterparties, trade through EU execution venues, or seek access to EU investors. Depending upon the activity, EU firms may need their Asian relationships to provide additional disclosures and reports and, in some cases, to change business practices in order for the EU firms to comply with MiFID II’s new obligations.
How can Bovill help?
Our highly qualified team of former regulators and experienced consultants can assist with:
- Conducting an impact analysis to enable Asian firms to identify how MiFID II will affect them directly or indirectly
- Performing a detailed gap analysis
- Advising firms on the implications on the unbundling of research and trade execution services
- Advising licensed Asian investment managers on regulatory reporting impacted by MiFID II
- Monitoring developments on third-country equivalence and when possible, help you obtain the relevant authorisations to operate under the MiFID II regime
- Advising on the national regulators’ implementation of MiFID II, along with evolving EU-level guidance from ESMA