The TRADE 59 - Q1 2019 | Page 68

[ I N - D E P T H | I N V E S T M E N T R E S E A R C H ] “We are seeing changes in behaviour which are starting to deliver the intended effects – reducing conflicts of interest, improved accountability and producing cost savings for investors.” ANDREW BAILEY, CHIEF EXECUTIVE, FINANCIAL CONDUCT AUTHORITY stage at this point. It could take five years for the regulation and implications of MiFID II to finally bed down across the industry, so we have a long way to go.” On the other hand, the UK’s FCA has taken a very different stance on the implementation and impacts of unbundling in Europe. Speaking at the end of February, Andrew Bailey, the watchdog’s chief exec- utive, proclaimed that MiFID II’s rules on payments and research have in fact had a positive impact on the industry so far. He labelled evidence suggesting that research coverage for liquidity on smaller 68 // TheTrade // Spring 2019 companies has been negatively impacted as ambigu- ous, despite the industry’s concerns. “I think the evidence is, so far, inconclusive, and does not suggest the dramatically negative impact that some predicted,” Bailey said. “Overall, we consider that the rules are already having a positive impact. We are seeing changes in behaviour which are starting to deliver the intended effects - reducing conflicts of interest, improving accountability and producing cost savings for investors.” Despite the relatively positive position the regulator is taking, Bailey added that the FCA - alongside the European Commission - is carrying out various studies on the effects of unbundling to address the concerns raised by market participants. Bailey said that the reg- ulator is aware of and is looking into several concerns, including the impact on smaller firms and the appar- ent plummet in the price of research as the industry adapts to the new landscape. For others in the industry, furthering the debate around the potential negative impacts of research unbundling is the most effective way of moving forward and navigating the complex issues of imple- menting such a far-reaching and global change. And the impacts of unbundling have indeed been global, with many global asset managers deciding to apply unbundling policies across regional businesses despite MiFID II being a European initiative. “It is clear that the industry is still evolving as we adjust to unbundling research, particularly in different regulatory locations across the globe. As we as an industry adjust to the regulatory changes, the true value in research is also evolving as the introduction of technology in the research process is leading to necessary changes in the production and consumption of research,” says Mike Bellaro, CEO of not-for-profit equities trading consortium, Plato Partnership. “The argument that research unbundling will lead to a decline in the number of analysts covering certain instruments or limit a company’s ability to engage investors is one viewpoint in a complex debate. As industry participants seek to differentiate in today’s competitive asset management industry, new alter- natives are beginning to emerge which will challenge the traditional provision of research and construction of investment ideas, and the emphasis on supplier dif- ferentiation and move to quality over quantity is now firmly underway.”