Memo #
32460

ICI Global's Response to the European Commission's MiFID II/MiFIR Consultation
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[32460]

May 15, 2020 TO: Derivatives Markets Advisory Committee
Equity Markets Advisory Committee
ETF Advisory Committee
Fixed-Income Advisory Committee
Global Advocacy Coordination Advisory Committee
Global Operations Advisory Committee
Global Operations Advisory Committee - Asia
ICI Global EU Capital Markets Union Task Force
ICI Global Exchange Traded Funds Committee
ICI Global Regulated Funds Committee
ICI Global Trading & Markets Committee
ICI Global Transaction Reporting Working Group RE: ICI Global's Response to the European Commission's MiFID II/MiFIR Consultation

 

On 15 May 2020, ICI Global submitted its response to the European Commission’s consultation on the review of MiFID II/MiFIR.[1] The submission is attached and takes account of member comments on the draft response[2] and input from other engagement with members.

Our submission to the European Commission addresses the trading and market structure framework and the investor protection framework in MiFID II/MiFIR as outlined below.

Trading and Market Structure

We state that the implementation of MiFID II/MiFIR has spurred innovation and enhanced competition across parts of the trading and market structure landscape. We recommend the following changes to enhance meaningfully pre-trade and post-trade transparency and ensure that fund managers can maximise execution quality for their end investors:

  • Make markets more transparent, fair, and efficient by establishing a consolidated tape – a comprehensive, thoughtfully implemented consolidated tape with fair pricing (i.e. transparent, cost-plus margin basis), high data quality, timely coverage and delivery, and appropriate governance would enhance the transparency of the markets and provide a multitude of benefits to investors, including opportunities to enhance execution outcomes. 
  • Enhance trading outcomes by repealing the share trading obligation and double volume cap – removing aspects of the market structure framework that are unnecessary for EU market transparency and competitiveness would reduce complexity, better facilitate the trading of securities on the most suitable venues, and enable fund managers to identify and access opportunities to maximise execution quality for end investors. 
  • Enhance best execution reporting for investors – achieve greater consistency and facilitate easier comparison analysis of best execution reports through standardisation and more evenly balanced “big picture” and granular data disclosures. 

We set out that ICI Global members’ overall assessment of the effect of unbundling on the quantity, quality and pricing of research varies. Nevertheless, members believe that the proposals put forward by the European Commission to increase the production of SME research would have limited, if any, impact on the production of good quality SME research and caution against taking action that may have unintended impacts.   

We also state that ICI Global members believe the regulatory framework for spot FX is adequately calibrated. Furthermore, that we have not identified market integrity or market conduct issues that warrant changes at EU or Member State level or justify spot FX contracts being brought within the scope of the MiFID II/MiFIR framework or MAR.

Investor Protection

In our submission, we recommend the enhancements to MiFID II/MiFIR’s investor protection framework that are listed below. These enhancements are designed to improve the process for fund investment, enhance investor choice, and enable fund investors to benefit from cost efficiencies derived from the management of pooled fund assets.

  • Improve investor access to suitable and appropriate investment funds by simplifying and revising product governance obligations and enhancing the inducements framework – removing complexity and refining the scope of the product governance and target market obligations would better take account of the different ways that investors use funds (e.g. for asset allocation or as part of a portfolio). Enhancing the inducements framework, including extending the quality enhancement and client best interest tests to all distribution fees, will enhance the effectiveness of the rules and deliver better outcomes for fund investors. 
  • Deliver efficient retail investment opportunities by allowing MiFID II/R requirements to adapt to digital technology – accommodating and encouraging the adoption of digital technology (e.g. virtual advice, online accounts/mobile apps) and making electronic delivery of information the default “durable medium” will improve the ability of investors to access fund investment opportunities. 
  • Simplify the fund investment process and enhance investor understanding by rationalising disclosure requirements – developing understandable pan-EU investor disclosure requirements that are harmonised across products (i.e., UCITS, PRIIPs and non-MiFID comparable products) and consistent across disclosures (e.g., fee information in ex-ante disclosures, KIIDs and KIDs, and ex-post disclosures) will support investors through the investment process. 
  • Maximise investor choice and access to investment funds by removing impediments to effective cross-border fund distribution – creating a database of investment products to aid investor comparison and removing barriers to cross-border fund distribution would increase investor choice and enable fund investors to benefit from greater cost efficiencies derived from the management of pooled fund assets. 

Next Steps

The European Commission launched the MiFID II/MiFIR consultation as part of its 2020 work programme,[3] under the auspices of the completion of the Capital Markets Union (CMU)[4] and other initiatives including its digital finance strategy.[5] The Commission intends to use the input it receives from the consultation, alongside other advice including from ESMA, to inform any changes to the MiFID II/MiFIR framework that it proposes. Reforms to certain aspects of MiFID II/MiFIR framework that are intended to provide a “quick fix” may be taken forward in the near term with reforms to other aspects forming part of the Commission’s medium to longer term agenda.

 

Giles Swan
Director of Global Funds Policy
ICI Global

 

Attachment

endnotes

[1] The consultation is available at https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2020-mifid-2-mifir-review-consultation-document_en.pdf. 

[2] See Memorandum No. 32437, ICI Global's Draft MiFID II Response to the European Commission - Member Comments Requested by 11 May 2020, available at https://www.iciglobal.org/iciglobal/pubs/memos/memo32437 

[3] https://ec.europa.eu/info/publications/2020-commission-work-programme-key-documents_en

[4] See Commission President von der Leyen’s political guidelines for the new Commission, available at https://ec.europa.eu/commission/sites/beta-political/files/political-guidelines-next-commission_en.pdf

[5] https://ec.europa.eu/info/business-economy-euro/banking-and-finance/digital-finance_en