[ I N - D E P T H
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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.”