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FCA: Mifid II rules will save investors £1bn

Andrew-Bailey-Conference-Alt-2013-700x450.jpgThe FCA’s chief executive Andrew Bailey has said that investors should save around £1bn in charges over the next five years thanks to Mifid II.

In a speech yesterday, Bailey noted that the vast majority of traditional asset managers had moved to fund research from their own revenues – instead of using their clients’ funds – as a result of new research cost disclosure rules under the EU directive.

He said the FCA’s work so far suggested that both research and execution costs on the buy-side had improved in terms of accountability and discipline.

Research budgets have decreased by some 20 to 30 per cent, Bailey estimated, and dealing commissions have fallen as research costs have dropped, but also because “managers are increasingly using more electronic, ‘low-touch’ channels”.

He added: “Overall, we estimate that the reduction in charges incurred by investors in equity portfolios managed in the UK was in the region of £180m in 2018. Assuming similar savings going forward, this equates to nearly £1bn over the next 5 years.”

However, he said that it was encouraging to see research was still available and being purchased when required.

Bailey said: “Importantly, buy-side firms have indicated they can still access the research they need. This may reflect the low ‘entry level’ prices for written research, alongside more thoughtful consumption across the board.

“We want to see independent research providers continue to play a key role in this landscape and will listen carefully to your concerns.”

Bailey noted that the FCA maintains “strong support” for the Mifid II reforms.

He said: “The unbundling of research remains one of the most debated aspects of Mifid II.

“Other regulators around the globe are looking on with interest at how things are developing here, and we have heard that asset owners outside the EU are putting pressure on asset managers to unbundle research from execution costs, to follow the example set in Mifid II.

“Overall, we consider that the rules are already having a positive impact.

“We are seeing changes in behaviour which are starting to deliver the intended effects – reducing conflicts of interest, improving accountability and producing cost savings for investors.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. What a load of B…squirt

    Not only are the FCA happy to leave the stable door open, but now wanting to feed its droppings to the good people of this country ….

    If Mr Bailey can’t credit people with better respect and brains, he certainly does not deserve his position, fine benefit package, and salary …in fact this is insulting

    Dear Mr and Mrs Consumer

    The hard truth follows-: (Or what Mr Bailey should have the honesty and integrity to say)

    Yes some costs may have been saved in some areas under MiFiD 2 rules, however these (costs) have been diverted to others, and in reality doubled if not trebled; you see, we the FCA, and the regulatory system we enforce, realise (or they damn well should do by now) that by forcing the financial industry, to double / triple its work load increases and in turn passes these costs to you the consumer…..the one saving grace is, you do have the option not to pay these, by not dealing with any of these very expensive, good regulated companies and/or advisers, but seek out the dark back street and sewer rats that will con and scam you out of your hard earned cash….the choice is of course yours…

    1) Pay through the nose for something that need not be that expensive …
    2) Run the very high risk (well its a certainty really) of losing the lot…. but you need to be safe in the knowledge, if you do lose all your money, you have the safety net of the FSCS, which all pay outs (funds returned) are levied back to the very people highlighted in 1; the consequence of this is ? Yep it just gets more and more and more expensive

    So in short, we the FCA, have created a perfect environment, were the the rats can feed freely, while the rest (well you the consumer, being the end user) pay !

    Oh and if we do collect any fines, on the off chance we catch any wrong doers…. there is no offset to help you, it goes to the treasury

    But on a final note, we at the FCA do like to focus on the very small positives of anything we do, and kind of forget of the huge negatives or consequences that follow on our unworkable rules and regulations, after all it does not bode well for our image of being the peoples champion, and there is little benefit for us (FCA) to be truthful we could do ourselves out of our huge salaries or even worse there could be redundancies …shudder the thought.

    AB

  2. I recently saw a letter from a firm to its clients saying that, because of the cost of increased regulation, it had been forced to put its charges UP. For every £1 it used to charge, it must now charge £1.20.

    • I have had several such letters…..did they think that the companies would just use their profits and cut their margin?
      How quaint!!

    • I don’t know how many of the readers deal with a stockbroker. I have see brokers charge a £20 compliance charge on each deal – in addition to the commission percentage. (Odd that they can sill charge a per-centage commission on both buying AND selling and then add a compliance charge on top and also a periodic fee).

  3. What planet is this guy on?

    As far as asset managers are concerned, very few of the public even look at their charges. Does he really think that the average cost of an OEIC is going to fall? What with the greater costs involved I would have thought that at the very least there would be no change or most likely costs will go up. Considering the fact that valuations (no doubt with a commentary) now have to be provided 4 times a year instead of the usual two I really don’t see where charges are going to decrease when the cost of compliance keeps rising.
    Perhaps Mr Bailey needs to dismount his Unicorn and look more closely at those on the coal face.

  4. Disappointingly no comment on the disastrously confusing disclosure of costs, particularly transaction costs. FSA continues to live in an ivory tower divorced from reality.

  5. “We are seeing changes in behaviour which are starting to deliver the intended effects – reducing conflicts of interest, improving accountability and producing cost savings for investors.”

    Would they admit it if that wasn’t the case? Note that this view appears to be based on chatting to a few people and making estimates rather than on empirical evidence. Have they considered whether the costs might have shifted elsewhere? The costs to firms of implementing MiFID II were far in excess of £1bn spread over 5 years! Who do they think is paying? Harry Potter?

    It’s also interesting to note that in the EU there is little to no enthusiasm for unbundling research costs. Indeed, as I understand it, the French regulator (with support from others) has a proposal in hand to reverse unbundling and is just waiting for the UK to exit before presenting. Wonder why?

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