At our recent Unbundling Uncovered event our panel on the regulatory outlook and its implications for investment research covered the softening of MiFID II rules, the direction of the SEC under Gensler, the FCA post Brexit and more.

If navigating the regulatory requirements of the global research market wasn’t already complicated enough – given an absence of harmonised global rules – the discussion highlighted that it could get even more complex for market participants.

Financial regulators in Europe have already begun to make some tweaks to the MiFID II rules, primarily by providing exemptions on SME research. Now the UK regulator, the FCA, is proposing similar recommendations for FICC, SMEs and IRP inducement rules.

This is when a few classic cliches spring to mind. ‘’Closing the barn door after the horse has bolted’’ and ‘’The genie is out of the bottle.’’ They speak to the potential for greater complexity that the industry will have to navigate.

Here are 5 factors that the buy and sell side need to think about.

– Will the FICC carve out make it – The European Commission proposed a similar exemption in 2020 but in the end the re-bundling of FICC research fell at the last hurdle?

– Even if FICC is removed from MiFID II rules does it mean that all sell-side will be willing to lose this revenue stream?

– How will the buyside adopt these changes after spending 3 years building sophisticated teams and processes?

– Is the SME carve out substantial enough – is it worth the administrative burden?

– IRP’s can no longer induce but is there an approved list of firms that fall under this category?

It’s not clear whether the modest changes to the unbundling requirements in Europe and the UK are indications of more to come, or whether participants have stress-tested regulators’ propensity to roll back, and that this will now be the status quo.

At Substantive we are working closely with our client community through regular working groups to keep on top of these developments as they progress. We maintain a frequent dialogue with regulators and asset managers on these topics. To find out more please email [email protected].