MIFID 2 and Brexit Where are we now
MIFID 2 and Brexit Where are we now, and a look into the crystal ball October 2017
Unbundling research: What’s the way forward? — RPA – ‘transactional’ method Pros and cons of your — RPA – ‘accounting method payment — Pay out of own P&L options Views from the market — 70% of Asset Managers say they’ll pay for research themselves(1) — Is the market prepared for Mi. FID II? — Battle over research costs — Implications on coverage / number of providers — Economic and fixed income research – free lunch? — Challenge to viability of some business models Source: (1) FTfm as at 1/9/17 © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 2
What wil MIFID 2 mean for distribution? A reshaped market landscape… Sub-scale firms exit and subpar firms close Shift to outsourced investment / PM Platforms increasingly prevalent …and a reality check for the industry. © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 3
Lessons from RDR: What might come next? Lower costs, more transparency Better advice A new advice gap? Need for more market research, and better understanding of the customer Inducements rules Pricing model innovation Vertical integration © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 4
What could the world look like on 2 October 2019? Here’s what might happen to research & execution a year on from Mi. FID II coming into force: Decrease in buy-side research spend Number of bulge brackets pull out of equity research Less sell-side coverage, shift to issuer paying for research Big asset managers build multiple internal research desks © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 5
What could the world look like on 2 October 2019? Here’s what might happen to distribution a year on from Mi. FID II coming into force: Regulatory fragmentation already happening, with more on the way Fee transparency drives fees lower: The sell-side slims in response Investment outsourcing becomes more prevalent More direct portfolios and bigger research teams Consolidation with both vertical and horizontal integration © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 6
Brexit: what happens next?
Firms leaving UK could reshape capital markets Movers and stayers Movers could reshape investment landscape Regulatory impact will also hit stayers — 19 banks and 7 large asset managers have announced plans to beef up operations elsewhere in the EU — Frankfurt, Luxembourg and Dublin early winners in the battle for movers — Capital markets, liquidity and trading venues all impacted, at same time as MII disrupts market structure — Asset manager’s front office operations have to adapt — Contract law, employment law, tax law issues — GDPR: Extraterritoriality issues © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 8
Passporting – no easy answers The biggest risk is temporal Diversity of thirdcountry provisions complicate things Equivalence is not a point in time consideration Impact on IM services to EU professional clients could be limited Impact on IM services to EU retail clients may be fatal — Could be (or feel) a long time between Brexit and equivalence — No common approach to equivalence — Equivalence ≠ Passporting — Judgement made for each new legislation — Judgement subject to review at any time — … but only if UK is adjudged as equivalent — … and even then firms could face restrictions — Policy to retail cross-border IM services likely to be more restrictive … — … this state of affairs could well be permanent © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 9
Delegation: Care needed ESMA focused on avoiding regulatory arbitrage Firms need to make contingency plans and communicate — Changing interpretations of ‘substance’ — ‘Letterboxing’ will be more scrutinised — Future regulatory reviews may cause more change — Impact of the various 3 rd party provisions — Impact of client / counterparty restrictions — Optionality offered by operating model © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 10
Restricted freedom of movement: Complex, costly Raises questions around talent management … A EU existing talent B UK existing talent C Future EU & global talent … and loss of talent impacts economy plc 25% Of UK business will be negatively impacted by restrictions on EU migration(2) Need to invest more in training © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Source: (1) KPMG survey of 2000 EU nationals; (2) NIESR/CIPD. Document Classification: KPMG Confidential 11
What could the world look on 2 October 2020? Equivalence agreed UK regulation deemed not equivalent Existing delegation rules maintained No passporting Limited passporting Much stricter rules on delegation for UK, US, Asian managers Shift of portfolio managers to EU or: Give up on Europe as a market © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Document Classification: KPMG Confidential 12
Thank you
kpmg. com/uk The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. | CREATE: CRT 087441 A Document Classification: KPMG Confidential
- Slides: 14