UK wealth managers share concerns over MiFID II

15 September 2014

Ahead of the FCA's conference on MiFID II on the 18th September (or the closure of the call for evidence in the House of Lords' investigation into the EU financial regulatory framework), Jonathan Sokhanvari of Multrees Investor Services comments on the viability of the wealth management market in the UK with regards to the regulation:

"While MiFID II's aim for increased transparency is laudable, the UK wealth management industry has two major concerns regarding the directive; the potential high compliance costs, and its seeming incompatibility with the traditional structure of UK non-bank wealth managers.

"Compliance with the new directive would be costly for most UK firms. Examples of the directive's requirements that would impact the UK wealth industry are many.  These include changing collateral requirements, changing workflow for execution only and advisory businesses, the revision of products deemed 'complex' and enhanced requirements to evidence best execution.

"MiFID II will put pressure on systems and IT resources. It will also open a wider scope for inadvertent regulatory breach and associated reputational damage. The challenges for UK wealth managers are further exacerbated by other factors. The shortening timelines for delivery create issues, as do the clash of inconsistent definitions between separate regulations, the challenge of attempting to bring together multiple asset classes under a single framework, incompatible national standards, and a lack of clear guidance.

"In the UK, the FCA has a stated aim of increasing competition within the industry.  MiFID II threatens to promote increased costs and higher capital requirements for wealth managers. This will inevitably threaten the client-focused specialist boutiques and non-bank wealth managers which UK regulators have done so well to foster. Ultimately customer outcomes, the key driver in this industry, could be negatively affected as choice of provider becomes more limited.

"MiFID II will have a wide-ranging impact on the regulation of investment services and activities in the EU. Much of the detail however, remains to be filled in under level two legislation and ESMA technical standards. The full picture will not emerge until this process is complete. In many areas it will be necessary for firms to expend vital resource at a much earlier stage to ensure compliance with the new regime."