Citi 2018 FinReg Outlook

Assessing the FinReg Landscape An interview with Richard Withers, Head of Government Relations, Europe, Vanguard Asset Management Navigating the consequences of Markets in Financial Instruments Directive (MiFID) 2, increased regulatory attention on Exchange Traded Funds (ETFs), and continued policymaker interest in the asset management sector means that the industry is facing another challenging year of regulatory change. Richard Withers, Vanguard’s Head of Government Relations in Europe, looks at the regulatory landscape and reveals his top priorities for the year ahead. What do you think the long-term impacts of MiFID 2 will be for asset managers? Like the original directive, MiFID 2 will have a significant long-term impact across investment firms. From my perspective, two important impact areas for asset managers are likely to be on costs and charges and transparency of ETF liquidity. I expect that the new total cost of investing figure, required under MiFID 2, will have a profound effect on investors’ awareness of costs incurred in purchasing a fund and their understanding of the impact of costs on net returns. As a result, I believe we will see further scrutiny of costs, providing an additional tailwind to the recent trend towards lower-cost funds and intermediary services. In addition to the increased focus on costs and charges, the mandatory post-trade transparency of ETFs is likely to increase market awareness of their liquidity, despite a significant amount of this trading still occurring over-the-counter in Europe. I expect that a greater appreciation of ETF liquidity will drive European investor demand for the broad diversification and trading flexibility at the low cost that ETFs offer. Looking ahead, what are the biggest regulatory challenges and opportunities assets managers will face in 2018? Outside Brexit, the biggest regulatory challenge that European asset managers will face in 2018 is policymakers’ focus on whether asset managers’ products and services offer value for money. Last year the Financial Conduct Authority published market studies on asset management and investment platforms and the European Securities and Markets Authority began to investigate the impact of costs and charges on mutual fund returns. In both cases there was a strong conclusion that the level of fees borne by a large number of investors is having a detrimental effect on their net returns. EMEA “As asset managers continue to globalize, maintaining a global mindset when it comes to policymaking, will be critical.” Citi Custody & Fund Services – FinReg Outlook 2018 15 14