1. MIFID 2 and Brexit Where are we now, and a look into the crystal ball
October 2017

2. Unbundling research: What’s the way forward?
Pros and cons of your payment options
RPA – ‘transactional’ method
RPA – ‘accounting method
Pay out of own P&L
Views from the market
70% of Asset Managers say they’ll pay for research themselves(1)
Is the market prepared for MiFID II?
Battle over research costs
Implications on coverage / number of providers
Economic and fixed income research – free lunch?
Challenge to viability of some business models
Source: (1) FTfm as at 1/9/17

3. What will MIFID 2 mean for distribution?
A reshaped market landscape…
Sub-scale firms exit and sub-par firms close
Shift to outsourced investment / PM
Platforms increasingly prevalent
…and a reality check for the industry.

4. Lessons from RDR: What might come next?
Lower costs, more transparency
Better advice
A new advice gap?
Inducements rules
Need for more market research, and better understanding of the customer
Vertical integration
Pricing model innovation

5. What could the world look like on 2 October 2019?
Here’s what might happen to research & execution a year on from MiFID II coming into force:
Decrease in buy-side research spend
Number of bulge brackets pull out of equity research
Less sell-side coverage, shift to issuer paying for research
Big asset managers build multiple internal research desks

6. What could the world look like on 2 October 2019?
Here’s what might happen to distribution a year on from MiFID II coming into force:
Regulatory fragmentation already happening, with more on the way
Fee transparency drives fees lower: The sell-side slims in response
Investment outsourcing becomes more prevalent
More direct portfolios and bigger research teams
Consolidation with both vertical and horizontal integration

7. Brexit: what happens next?

8. Firms leaving UK could reshape capital markets
Movers and stayers
19 banks and 7 large asset managers have announced plans to beef up operations elsewhere in the EU
Frankfurt, Luxembourg and Dublin early winners in the battle for movers
Capital markets, liquidity and trading venues all impacted, at same time as MII disrupts market structure
Asset manager’s front office operations have to adapt
Movers could reshape investment landscape
Regulatory impact will also hit stayers
Contract law, employment law, tax law issues
GDPR: Extraterritoriality issues

9. Passporting – no easy answers
No common approach to equivalence
Equivalence ≠ Passporting
Could be (or feel) a long time between Brexit and equivalence
Diversity of third-country provisions complicate things
The biggest risk is temporal
Equivalence is not a point in time consideration
Judgement made for each new legislation
Judgement subject to review at any time
Policy to retail cross-border IM services likely to be more restrictive …
… this state of affairs could well be permanent
… but only if UK is adjudged as equivalent
… and even then firms could face restrictions
Impact on IM services to EU retail clients may be fatal
Impact on IM services to EU professional clients could be limited

10. Delegation: Care needed
ESMA focused on avoiding regulatory arbitrage
Changing interpretations of ‘substance’
‘Letterboxing’ will be more scrutinised
Future regulatory reviews may cause more change
Firms need to make contingency plans and communicate
Impact of the various 3rd party provisions
Impact of client / counterparty restrictions
Optionality offered by operating model

11. Restricted freedom of movement: Complex, costly
Raises questions around talent management … A
EU existing talent B
UK existing talent C
Future EU & global talent
… and loss of talent impacts economy plc
25%
Of UK business will be negatively impacted by restrictions on EU migration(2)
Need to invest more in training
Source: (1) KPMG survey of 2000 EU nationals; (2) NIESR/CIPD.

12. What could the world look on 2 October 2020?
Equivalence agreed
UK regulation deemed not equivalent
Existing delegation rules maintained
No passporting
Limited passporting
Much stricter rules on delegation for UK, US, Asian managers
Shift of portfolio managers to EU
or:
Give up on Europe as a market

13. Thank you

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