Europe’s asset managers could find themselves affected by rules on how securities research is paid for in a third of key markets outside of the EU.
Eleven jurisdictions, including Hong Kong, China and Brazil, only permit separate hard payments for research under certain conditions, which goes against EU regulations.
The UK’s Investment Association and law firm Dechert studied the laws surrounding research payments in 33 non-EU countries in light of the revised Market in Financial Instruments Directive (MiFID II) introduced in January that changed how fund managers pay brokers for stock and bond research.
MiFID II has required the complete separation of payment for execution and research and it not only affects activities within the EU, but also situations in which managers have delegated asset management activities to jurisdictions outside of the EU.
The IA said MiFID II affects asset managers in over a third of non-EU jurisdictions.
Indonesia does not permit hard payment at all – that is, payment for research that is separate to payment for execution – and nor does the US.
The situation with the US was under scrutiny before the implementation of MiFID II as brokers there could also not accept direct payment. But a temporary relief was granted, which permitted a broker-dealer to accept hard payment for research from an investment manager that is subject to MiFID II and who pays through a MiFID II-governed research payment account.
However, 20 markets including Japan, Canada and Singapore were among those that do allow hard payments .
Ross Barrett, senior policy advisor at the IA, said asset managers spanning multiple markets needed to understand the impact of the MiFID II research rules on their global business models.
“Payment for research with the United States was a key focus prior to the introduction of MiFID II, but the wider global implications are also extremely important.”
Further names of countries allowing, not allowing, or partially allowing hard payments were not released publicly by the IA, which had not responded to a request for the names at time of publication. The IA said the full research was available free to its members.
*UPDATE: The IA and Dechert subsequently supplied a list to Funds Europe of 20 countries that do permit hard payments.
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