“From an asset manager perspective, transparency to underlying investors and investor protection are two of the main components of Mifid II. If you have to do that for Europeans, how do you treat other investors in other jurisdictions?,” Wendy Phillis, London-based head of governance and regulatory solutions for Europe and Asia-Pacific at RBC Investor and Treasury Services, told FSA on a recent visit to Hong Kong.
The new version of the Market in Financial Instruments Directive (Mifid II) came into force in Europe on 3 January. Although it is a European directive, managers and distributors outside the region, including Asia, are affected as well.
One area where Mifid II has an impact is research, requiring the asset management house, not the client, to pay for research costs, according to Andrew Gordon, the firm’s Asia managing director.
“Mifid required the unbundling of research,” he said. Nearly all asset managers in Europe have said they will pay the cost of research, switching from the previous practice of bundling the cost inside fees charged to the investor.
The new rules cover all products domiciled in the European Union, including Irish and Luxembourg Ucits funds, many of which are offered for sale in Asia. European firms with sales in Asia are also affected.
For firms operating globally, a choice must be made. “Treating one set of clients where the firm pays for research and another set of clients where they pay for it – for the same strategy – represents a real dilemma,” Gordon said.
Who is affected by Mifid II?
Managers operating outside Europe should by now be aware if they are affected by the new directive, according to Phillis.
For example, Asia-based managers who distribute funds in Europe have to comply with the directive. “The impact would be for the managers here to provide information to manufacturers and distributors in the EU so that the obligations can be fulfilled,” she said.
Managers in Asia who serve as sub-advisers are not directly impacted by the directive, but their partners in Europe will be asking them for information about various fees as they are required to disclose them to investors, she added.
Besides asset managers, distributors in Asia are also affected by the new directive.
For example, Asia-Pacific private banks who have EU clients are affected by the legislation, according to an EY document (PDF). The new directive around product distribution also increases the responsibilities of an Asia-Pacific distributor that sells EU-manufactured funds, such as Ucits, to clients in the region.