Among the most contentious changes under Mifid II legislation is a requirement that fund managers pay banks and brokers directly for analyst research
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Asset managers across Europe are racing against the clock to ensure they do not suffer significant business losses following the introduction on January 3 of sweeping new rules that will affect every European investor.
Huge volumes of data necessary for compliance with the rules, known as Mifid II, have not been delivered by asset managers to distributors who can refuse to sell investment funds and structured products without the required information.
With the deadline looming, distributors have urged asset managers to accelerate their efforts to deliver new information on fund costs and “target market” data relating to the risk profile of the target investor, their knowledge and experience and their ability to bear losses.
“Asset managers know they could be running the risk of losing business, and that is a powerful incentive to encourage them to meet the deadline,” said Jaime Perez-Maura, global head of business development at Allfunds, the largest fund platform in Europe.
Mr Perez-Maura added that most of the 550 managers Allfunds was in contact with were aware that if they did not provide the required information by the deadline date “distributors will not be able to sell their funds”.
Joanne Gilbert, deputy head of specialist distribution at Aberdeen Standard Investments, said large managers were “in the main” confident of meeting the deadline but smaller companies were struggling. This has created uncertainty about what might follow.
“Will distributors remove asset managers that are unable to comply from their platforms? Will asset managers terminate relationships with distributors that are unable to comply? What will this mean for clients?” she asked.
Asset managers use a so-called European Mifid template to deliver data to distributors. But no standard template has been formally agreed among industry participants, which has led to managers providing inconsistent and incomplete information that sometimes lacks mandatory data points.
Steve Bennett, chairman of the Financial Inclusion Data Working Group, a 30-strong group of fund managers, intermediaries and distributors, said there was “significant risk” of disruption to the sale of funds, structured products and individual securities due to the Mifid product governance requirements.
Richard Lepere, managing director of Fund Channel, a Luxembourg-based platform that works with more than 400 asset managers and over 100 distributors across 12 European countries, warned that time would be required to analyse and check the incoming data.
“It is a real challenge for distributors across Europe to be ready, given the timing and the speed at which the missing data are being provided,” said Mr Lepere.
Matthew Newnham, head of business development at MFEX, the Stockholm-headquartered fund platform with 816 asset managers and distributors in 21 European countries, said some distributors would feel compelled to “take products off the shelf” if they were not provided with the right information.
“Mifid II is law. If a distributor fails to disclose the required data, they will be in breach of the law and an investor could potentially have a case against them. Some distributors will not sell products if they don’t have the information to meet their legal obligations,” said Mr Newnham.
The sale of complex investments, such as hedge funds and structured products, is expected to become more challenging as a result of the new rules.
Further complications for asset managers have arisen because distributors in Germany are using a different template developed by WM Datenservice, an information services provider.
Last-minute problems have also emerged. Last week, Norway decided to bring its implementation of Mifid II data requirements forward from the summer of 2018 to January.
“This was a real surprise to the Norwegian industry,” said Mr Newnham.
Aegon, the Dutch insurer that owns Cofunds, the platform most widely used by UK financial advisers, said: “Fund managers have told us that they will be ready ahead of January, and while timings are tight, we expect the majority of the data will arrive in the coming weeks.”
Both asset managers and distributors accept that further work is necessary in 2018 to refine and standardise the European Mifid template.