Regulators’ flexibility on broker research welcomed

Broker researchMoves by regulators last week to give flexibility to asset managers who have to comply with the EU’s MiFID II but have operations outside of the EU were welcomed.

The clarity, which came from the European Commission and the US Securities and Exchange Commission (SEC) concerned the unbundling of broker research fees.

The EU said a “third-country broker-dealer may receive combined payments for research and execution as a single commission when providing such services to a MiFID II portfolio manager or its third-country sub-advisor, as long as the payment attributable to research can be identified”.

Meanwhile, the SEC granted a 30-month window for US fund managers to see how they could unbundle research costs from trading costs without facing action from the regulator.

A number of US firms had worried that MiFID II’s stance on research payments, which requires unbundling of charges for clients who pay them, could lead to the loss of research for some asset managers.

The SEC said the no-action relief provides a “path for market participants to comply with the research requirements of MiFID II in a manner that is consistent with the US federal securities laws”.

On a temporary basis broker-dealers may receive research payments from fund managers in hard dollars or from advisory clients' research payment accounts, the SEC said.

The SEC also said fund managers may continue to aggregate orders for mutual funds and other clients, and “may continue to rely on an existing safe harbor when paying broker-dealers for research and brokerage”.

Chris Cummings, CEO of the Investment Association in the UK, said: “We will now review the details, but it is clear that this package of measures addresses a key outstanding challenge for our industry with regard to the implementation of MiFID II.”

Associate General Counsel of the US Investment Companies Institute, Jennifer Choi, said the no-action letters were a “positive step” toward resolving conflicting US and EU regulations related to payments for investment research.

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