After three years of criticism, administrative headaches for banks and an exodus from stock research, the pandemic prompted Europe to water down its key financial market rules.
The Markets in Financial Instruments Directive (MiFID) II regulation, conceived at a time when Britain was a driving force behind the EU’s financial-services regime, will be relaxed in a bid to boost the recovery from the pandemic. The changes lighten administrative burdens on experienced investors, alter rules on commodity derivatives, and revise the controversial “unbundling” rules that forced investors to pay for investment research separately from trading fees.
The European Commission, the EU’s executive arm, said on Wednesday that the changes to the revised MiFID will encourage the investment community to pay more attention to small- and mid-sized firms, attracting investment as they grow and helping lift the region’s economies out of a historic recession.
Under the new policy, equity research on firms with a market capitalisation below €1bn can be “rebundled”, or offered for free to a firm’s trading clients.
“This will help make it easier for our markets to support European businesses during this difficult time,” Mairead McGuinness, European commissioner for financial services, said in a statement. The commission proposed changes to the rules in July as the economy took a hit from the Covid-19 pandemic.
The research change alters a policy that was one of the UK’s top priorities when the legislation was originally written and Britain, home to a huge cluster of asset-management firms, had not voted for Brexit. A UK Financial Conduct Authority analysis in 2019 defended MiFID II, finding it would save investors in equity portfolios managed in the UK nearly £1bn over five years.
The opposing view was expressed on Wednesday by Markus Ferber, a German member of the European parliament and leading legislator on MiFID II affairs. He said the revisions are about getting rid of “red tape” facing the industry.
“During the pandemic, many companies have been bleeding equity and desperately need access to capital markets,” Ferber said in a statement.
MiFID II went into effect on January 3 2018, after months of work by financial institutions and their lawyers to comply with more than 7,000 pages of regulations overhauling trading in most asset classes.