MiFID Research Rules Have Nordic Regulators as Muddled as Banks

  • Swedish, Danish supervisors say implementing directive ‘hard’
  • Defining minor non-monetary benefits is among sticking points

Scandinavian regulators are warning finance professionals that they’re unlikely to get the clarity they crave on MiFID II before it takes effect in just over three months.

By design, Europe’s revision of the Markets in Financial Instruments Directive gives local regulators some freedom to decide what to tell banks and asset managers about how to comply. Swedish and Danish officials say that’s making it hard to provide the kind of guidance that market participants expect in one area of MiFID II in particular: inducements.

The headline regulation is straightforward: no more kickbacks or benefits, monetary or otherwise (including research, training and meals), that might sway the decisions of independent asset managers on what to offer, what to trade and with whom. But then again, some are allowed. It just depends.

“In general, inducements are not allowed,” Erik Lindholm, deputy director of market conduct supervision at Sweden’s Financial Supervisory Authority, said in an interview. That is, “unless it meets the requirement in the regulation. And that’s probably the hard part.”

Blurry Lines

Generally speaking, finance professionals who give advice or manage assets can sometimes accept inducements from third parties like banks and investment funds, if they act on behalf of customers. Non-monetary benefits that improve service quality may also be permitted. But the lines are blurry, according to Jesper Berg, director general of Denmark’s FSA.

“The guidelines are quite clear in relation to portfolio management: they can’t be paid by the investment manager for their relationship to the distributor,” Berg said. What’s less clear is how to apply that policy to quality-enhancing services in investment advice and to execution-only services, he said.

A QuickTake Q&A on MiFID II and investment research

The issue is another example of confusion surrounding MiFID’s overhaul just months before it kicks in. EU regulators have yet to make key decisions surrounding dark pools, swap trading and rule clashes with foreign markets, while the directive’s size and complexity have driven U.K. regulators to say they won’t crack down on firms that have tried hard to get ready for the Jan. 3 start date but didn’t quite make it. In Scandinavia, regulators are reluctant to provide very specific guidance out of concern it will be applied too broadly.

Lauri Rosendahl, the chief executive officer of Nasdaq Nordic, says MiFID II is overall “definitely a good thing,” though the reaction has been mixed. “People haven’t been very pleased with the regulation as it creates a lot of work and hassle, and costs throughout the whole value chain,” he said. “So no one is probably very satisfied.”

“We’re in a very intensive period as we’re trying to get MiFID II in place,” Rosendahl said. Any suggestion that there might at some stage be a MiFID III “isn’t even a bad joke,” he said.

Transitional Rules

Norway’s FSA earlier this month said it plans to introduce transitional rules after it became apparent that full implementation by the Jan. 3 deadline would be impossible. Berg said Denmark and its financial industry “will be ready” by the deadline, but that some changes may follow as kinks get worked out.

Meanwhile, financial institutions in the Nordics are testing interpretations. Denmark’s biggest lender, Danske Bank A/S, said last month it will continue to give much of its fixed-income research for free to avoid complications. But the bank also said it didn’t know whether to charge clients talking to its analysts by phone or in person about research that’s already available for free. (ESMA has since said it depends on the call’s contents.)

“It is very much an area where you have to describe everything very specifically in order to be able to give an answer,” Lindholm at the Swedish FSA said. “And of course, I must admit, as everyone, that it’s not always easy to give an exact answer, because they are so dependent on so many factors.”


Berg said Denmark would like more guidance from the European Securities and Markets Authority, which is responsible for ensuring MiFID II’s implementation. But “it’s uncertain whether ESMA will come with more specific guidance, because there’s disagreement among European authorities,” he said. “Looking across Europe, there are many views on how provisioning should be handled,” he said.

(Ironically, MiFID II is partly an attempt to align differing applications of the inducements provision of the first directive.)

ESMA says that introducing a new set of requirements just takes a lot of effort. Those who are confused should consult its Questions & Answers service on its website, it says.

“All new regimes require extensive preparatory work,” spokesman David Cliffe said in an emailed response to questions. ESMA, which is based in Paris, “is working closely with national authorities to ensure that common supervisory approaches and practices are adopted across to the EU.”

Vague Questions

For its part, Sweden plans to hold a forum on Sept. 27 to discuss the regulation with its financial industry. It’s advising banks and funds to read and apply the rules as well as they can and provide justification for their decisions.

The Stockholm-based regulator is also telling funds and banks to be specific when they ask for assistance, because “a general question will be responded to with a general answer, which gets them back to square 1,” Lindholm said.

MiFID II’s complexity has already delayed its implementation by a year.

“I understand that it is hard for a company to apply new rules, and inducement rules aren’t always very simple to apply in specific cases,” Lindholm said. “Some things are easy to interpret into your daily business, and others are not so simple.”

— With assistance by Hanna Hoikkala

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