Asset managers affected by MiFID II research rules in over a third of key non-EU jurisdictions

Tuesday 20 March 2018

The Investment Association (IA) in partnership with Dechert LLP has today published Global Survey on Payment for Research, a review of the research payment rules in 33 key global jurisdictions following
the implementation of MiFID II on 3rd January 2018.

MiFID II has had a significant impact on arrangements for the receipt and payment of research requiring the complete separation of payment for execution and research. This new regulation not only affects activities within the European Union (EU), but also situations in which managers have delegated asset management activities to jurisdictions outside of the EU.

The new Global Survey on Payment for Research provides information on whether separate payment for research is permitted in a range of non-EU jurisdictions. The Survey is intended to assist firms to implement the new research requirements across their global operations which may cover multiple legal entities.

Of the 33 jurisdictions covered in the Survey:

• Two jurisdictions do not permit hard payment – this includes Indonesia and the United States. The United States is included in this category as the Securities and Exchange Commission’s no-action relief letter is a temporary measure.
• 11 jurisdictions permit separate hard payment under certain conditions – this includes Hong Kong, China, Bermuda, India and Brazil, amongst others.
• 20 jurisdictions permit hard payment for research, including jurisdictions such as Japan, Canada and Singapore.

Ross Barrett, Senior Policy Advisor at the IA said:

“The UK investment management industry is truly international. With firms spanning multiple markets, asset managers need 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. The Survey offers a valuable central
resource for the asset management industry, enabling them to review the rules across key global jurisdictions.”

Monica Gogna, financial regulatory partner at Dechert LLP said:

“Dechert’s global asset management clients are seeking solutions which work across the globe. We are pleased our collaboration with the IA on the subject of the cross-border impact of the MiFID II research
rules has resulted in the successful release of Global Survey on Payment for Research, powered by Dechert’s World Compass tool.”

-ENDS-

Notes to Editors

• Global Survey on Payment for Research is available free of charge to all IA members via the IA members’ website.
• Global Survey on Payment for Research covers the following jurisdictions: Australia, Azerbaijan, Bahrain, Bermuda, Brazil, Brunei, Canada, Cayman, Chile, China (P.R.C), Colombia, Egypt, Hong Kong, India, Indonesia, Israel, Japan, Jordan, Kuwait, Malaysia, Mexico, New Zealand, Oman, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Korea, Taiwan (R.O.C), Thailand, United States.
• For those jurisdictions which permit separate hard payment under certain conditions, typically they require the broker to have the appropriate licence to give advice. Note, in the United States, temporary exemptive relief has been granted which does permit such a broker-dealer to accept hard payment for research from an investment manager who is subject to MiFID II (directly or contractually under a delegation arrangement) and who pays through a MiFID II governed Research Payment Account.
• On 3rd January 2018, new obligations for the acquisition of investment research by EU MiFID firms came into force where EU firms have delegated investment management activities to investment managers outside of the EU – this needs to be examined in a global context. MiFID II in practice prohibits an EU investment manager from receiving investment research unless it pays for that research from its own P&L (paying hard) or (by clients who agree to it) through a Research Payment Account. In the UK at least, where the EU manager (subject to those provisions) delegates investment management to a third party investment manager located outside of the EU, there is an expectation that they will secure equivalent outcomes contractually in their agreements with those third party managers. The issue is that there are rules in some of those non-EU countries which restrict or prohibit the ability on managers to achieve those equivalent outcomes.

For more information contact:

Victoria Jonson, The Investment Association: [email protected]
T +44 (0)20 7269 4696

Erin West, Dechert LLP: [email protected]
T +1 202 261 7761

About the Investment Association (IA):

• The IA champions UK asset management, supporting British savers, investors and businesses. Our 240 members manage £6.9 trillion of assets and employ 93,500 people across the UK.
• Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
• Our purpose is to ensure investment managers are in the best possible position to:
  • Build people’s resilience to financial adversity
  • Help people achieve their financial aspirations
  • Enable people to maintain a decent standard of living as they grow older
  • Contribute to economic growth through the efficient allocation of capital.
• The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
• The UK is the second largest investment management centre in the world, after the US and manages 37% of all assets managed in Europe.

About Dechert LLP

Dechert LLP is a global law firm with more than 200 lawyers dedicated to funds and financial services matters. The firm has expertise across all major asset classes, fund domiciles and structures and
provides expertise at every stage of the investment lifecycle. Dechert was the first and remains the leading major international law firm with a funds practice that spans the key European investment fund centres – Dublin, Frankfurt, London, Luxembourg, Munich and Paris – as well as throughout the U.S., Middle East and Asia. As a result, our lawyers are in a unique position to give jurisdictional-neutral and unbiased advice about the right structures for raising and deploying capital both in Europe and beyond, with strong attention to tax efficiency and market terms.

Dechert’s World Compass is a solution for investment managers and their in-house legal and compliance professionals as they advise their teams on distribution strategies and navigate the constantly changing regulatory landscape relating to global offerings of financial products. World Compass provides detailed information on global distribution rules, beneficial ownership reporting requirements and
regulatory issues affecting cross border commercial lending and debt activities through a web-based portal that is up-to-date, available 24/7 and easily accessible.