Research Cost Apportion Subject of Future Discussions

Firms could find themselves attempting to comply with conflicting laws.

With just a few months left before MiFID II takes effect, the European legislation continues to have repercussions here in the US.

In a blog shared with Traders Magazine, Haydn Lightfoot, Senior Director at Synechron said that given the more global implication of MiFID II, an overseas regulation targeting overseas firms, many firms find themselves attempting to comply with conflicting laws.

“In the US, brokers cannot be directly paid for research without being formally registered as investment advisors. Under MiFID II, the charges for investment and analyst research must be clearly split out, which while in itself is a challenge, also gives rise to situations that cannot align with US regulation,” Lightfoot began. “Many asset managers are absorbing research costs for MiFID II – impacted clients as a result of this. However, how such firms choose to apportion these costs internally will likely be the source of much discussion.

He continued. “For certain jurisdictions, issues exist in establishing ways to comply with the MiFID II Transaction Reporting obligations while observing local data privacy laws. For instance, reporting personal information on clients and traders (e.g. passport numbers) can conflict with local law in some countries.”

Lightfoot said that where conflicting regulations overlap, there is clearly potential for firms to be at risk of non-compliance in some form. Without support from respective regulators, mitigating such risks and working out appropriate solutions may require significant effort and expense, and may ultimately produce scenarios that could be questioned are more of an unintended consequence rather than being in keeping with original objectives of the regulations involved.

“In specifying MiFID II rules that require separate charging of research costs, it may not have been the intention to see industry players absorb their research costs. In jurisdictions where data privacy rules conflict with MiFID II requirements, it may not be the intention for firms to have to adjust their jurisdictional footprint to remain compliant.”

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