Asset managers face a number of negative consequences due to the MiFID II capital market reforms, warns the ratings firm Moody’s.
MiFID II – the revised Markets in Financial Instruments Directive that became effective in January – will “accentuate every trend hitting the industry today”, Moody’s analysts said in a report*.
These trends include the drift towards lower cost passive investment strategies, sharpened competition between firms, and consolidation.
“The impact is credit negative for the asset management industry and could spread beyond Europe,” says the Moody’s report.
Marina Cremonese, senior analyst at the firm and an author of the report, said: “The introduction of MiFID II will put pressure on asset managers’ profits by lowering their effective fee rate and increasing their costs.”
However, the report also argues that cost saving initiatives, new investment solutions and consolidation will likely offset some of the negative effects and limit the credit impact on the industry.
The fee pressure comes from more transparency shed on costs and charges, while other cost pressure stems from securities research and reporting requirements.
The report also says that, as ETF trades now have to be reported, the greater information about trading volumes and levels of liquidity will likely encourage greater use of ETFs by institutional investors, including for securities lending purposes.
*’Asset Management — Europe; MiFID II is credit negative, intensifying fee competition, shift to passive funds’.
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