Citi 2018 FinReg Outlook

platforms to monitor the target market, and provide much more information to asset managers. To reduce the oversight workload, distributors and platforms may reduce the number of funds they offer. Likewise, asset managers may limit the number of distributors and platforms they use to sell their funds. In either case, the end result could be more restricted sales architectures and reduced choice for EU investors. Another possible outcome is that asset managers may seek to disintermediate some of their distributors and go direct to customers. This could lead to more asset managers launching robo-advisors across the EU. Either way, MiFID 2 could have long-term implications for the distribution of funds in Europe. MIFID 2 EQUIVALENCE WILL REMAIN A THEORETICAL CONCEPT MiFID 2 introduced a third-country (i.e. non-EU) equivalence regime, allowing the European Commission to deem non-EU jurisdictions as having equivalent regulations to MiFID 2. If a third country is granted equivalence, financial firms from that country could provide investment services or activities to EU investors (although the regime only covers professional investors and counterparties). There are two key challenges to the Commission granting third-country equivalence: one technical, the other political. The technical issue is that there are few countries with equivalent rules to MiFID 2. The political issue is Brexit. As the EU and UK engage in the Brexit negotiations, there will be political pressure to ensure the UK does not appear to benefit from exiting the EU. Therefore, despite the UK fully implementing MiFID 2, it still may not be granted equivalence. Brexit has also made EU policymakers reconsider the idea of equivalence, which may delay extending equivalence to other jurisdictions. Overall, at least for this year, it seems likely MiFID 2 equivalence will remainmore a theoretical concept than a practical one. EXPECT TECHNICAL ADJUSTMENTS With a piece of regulation as large and complex as MiFID 2, it is inevitable some elements of the rules will need to be fine-tuned. For example, the asset management industry would love to see the cost disclosures under MiFID 2, the Undertakings for Collective Investment in Transferable Securities, and Packaged Retail Investment and Insurance Products harmonized. At the moment, the same basic information needs to be reported in three different ways. However, neither the industry nor policymakers have the desire to embark upon another nearly decade- long legislative process to implement a MiFID 3. What is more likely, is that the Commission and European Securities and Markets Authority make technical adjustments to MiFID 2 where possible. This will eliminate the need for a protracted debate over the changes, and allow the EU to be nimbler in addressing potential issues. If issues do require legislative work, it will probably be more tactical in nature. So while there could be changes to MiFID 2 in the coming years, they are more likely to be in the form of a MiFID 2.1 than a MiFID 3. 3 4 Citi Custody & Fund Services – FinReg Outlook 2018 29 28

RkJQdWJsaXNoZXIy MjE5MzU5