• Article by BRUIN Financial


BRUIN Financial recently held a breakfast forum to explore and discuss the key impacts of MiFID2/MiFIR, BASEL III and FATCA/CDOT/CRS upon the Middle and Back Office Operations of small to mid-sized Asset Managers and Hedge Funds. Our speaker, Adam Jacobs, Global Head of Market Regulation at the Alternative Investment Management Association is a specialist on MiFID2 and BASEL III.

Topics for discussion included:

  • MIFID II; Delays and what this means
  • Key areas of impact; MIFID II/BASEL III
  • Key areas of impact; FATCA/CDOT/CRS
  • Other regulatory factors that could affect the industry in 2016


The core interest from the majority of attendees lay within the MiFID2 arena. BASEL III and the Tax regulations, whilst important issues, were seen of less immediate importance compared to MiFID2, and so this summary will primarily focus upon the key points discussed around this area of regulation.

Implementation Delays/Changes

This area was of particular interest to the attendees, as well as a hot topic of discussion more broadly for AIMA members. Whilst yet to be confirmed, the consensus is that the implementation date (currently set as January 3rd, 2017) will be pushed back 12 months to January 2018. The European Commission could potentially implement a staggered delay, with various aspects coming into effect over the course of the 12 months between Jan 2017 and Jan 2018, however this is considered unlikely due to the inter-dependencies of the rules. There are still elements of the Secondary legislation to be finalised, however the Primary legislation will most likely be implemented in its current format with no significant changes. Many houses are currently walking a fairly tight line in respect of ensuring compliance, as the consensus sees that most do not wish to be ahead of the game, with the risk of running into serious issues without an example of how these issues can be handled from other houses, whilst equally not leaving it too late so as to not be fully compliant by ‘Go Live’. An official decision on the new timetable is expected to be announced by the EC in the coming weeks.

Dealing Commissions

This aspect of the changes coming in for MiFID2 is a key aspect for many managers, and from AIMA’s standpoint is the number one issue that their members have expressed interest in. This relates to the provision that when an investment firm provides portfolio management or investment advice it must not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by a third party. This is more succinctly seen as a ban on ‘inducements’. The European Securities and Markets Authority (ESMA) had stated that this ban extends to the receipt of research carried out by a manager, with the requirement be that the managers must either self-fund research, or charge their clients a separate fee for a Research Payment Account (RPA), which cannot be funded from dealing commissions. The European Commission looks set to soften this approach.

Pre/Post Trade Transparency

Pre- and Post-Trade transparency has seen a significant overhaul in the new MiFID2 regulations. Various impacts of this area can impact upon firm liquidity and RFQ trading venues, as well as currently lacking a framework for packaged transactions. The requirement for companies to make public an annual list of their top 5 execution venues, split by asset class, is another significant change that could have a significant impact upon the Investment Management industry. This information is expected to be of particular interest to brokers. For the Middle and Back office arena, the key impact will be the requirement to make all post-trade information accessible as soon as technologically possible, with all information available to public access within 15 minutes of trade execution, however there is the provision of a deferred publication for qualifying instruments.

Call Recording/Monitoring Requirements

Under current legislation, there are exemptions in place for discretionary Investment Managers in respect of recording their internal and external calls and communication, these being if the firm with whom they are in contact are obligated to record their calls or if the communications are infrequent and only a small part of the total communications on part of the manager. The FCA is inclined to now remove these exemptions and make all forms of monitoring of communication mandatory. This will impinge upon firms in financial terms, as the increased cost of technology, as well as the requirement to implement said technology, could prove expensive. The challenges identified by the speaker and attendees is the difficulty in monitoring such a large volume of information, as well as interpreting conversations that could either be in code or text speak, thus avoiding the highlighting systems for potential red flags.

Transaction Reporting

This section was a particularly strong focus of the discussion, due to the sizeable impact it will have upon the Operational area of managers. Whilst the overarching provisions for Transaction Reporting will be similar, there have been a number of significant alterations to current legislation. Changes will preclude a requirement to upgrade or update current technology in order to ensure compliance. The focus of this area of discussion hinged upon ‘self-reporting’. Investment Firms will be required to report their transactions by no later than T+1 and reporting must be completed by the respective firm unless another firm will carry out the reporting on the managers behalf. The discussion turned towards the desire to self-report, with the majority being of the opinion that with there being little-to-no benefit for brokers to report on the firms’ behalf, the likelihood is that all reporting will be carried out in-house.

BASEL III/Tax Regulations

BASEL III is an area which has been slowly gaining more and more interest among Investment Managers. At its base level, it is an improvement upon the current BASEL II regulations, addressing several deficiencies in the existing framework; however these roles are not yet binding as they are still in the implementation phase. The key challenge with these regulations is the feedback that it could have a fairly hefty impact upon costs. In a recent survey conducted by AIMA, 50% of respondents stated that the rules have already caused an increase in related costs, with 75% foreseeing an increase in related costs in the future.

On the subject of FATCA, CDOT and CRS, it was agreed that this topic be left for another time, with MiFID2 taking up a significant portion of the time and resources of the various houses.

For more information, or details of future Operations events please contact Kirsty Pineger.