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“What is MiFID II?” Dolfin’s Head of Compliance Development, Oliver Rodwell, posed the question to delegates at a briefing in the boardroom of our Mayfair office on 1 February. “It depends who you ask. A lawyer will tell you MiFID II is a huge and complex piece of EU legislation. An asset manager will tell you it’s a mechanism for increasing transparency, lowering costs, and achieving greater harmonisation within the markets. And a salesperson will tell you it’s a massive pain in the neck.”
It’s a view that may have resonated with many of the 65 attendees at the event. But, as Rodwell went on to explain, the high-level goals of the directive are simple, and its impact on the industry is likely to be positive. However, the legislation is complex and open to interpretation.
“MiFID II is a massive regulatory change,” he told delegates. “But it doesn’t always tell you what to do. It can be hard to decide exactly how to implement the legislation, and to what extent.”
To take account of the vague nature of some aspects of the legislation, Dolfin carried out an extensive risk assessment exercise, and identified the most significant impacts the directive will have on the way we and our clients do business, and the operational changes that would be required. Over a period of 18 months, we expanded our compliance team, shared our research with stakeholders, finalised our implementation plan – which entailed altering back-office system specifications, changing policies and procedures and updating legal documentation – and were ready to ‘switch on’ our MiFID II-compliant systems on 3 January 2017 with nothing outstanding.
One significant change introduced under the legislation is the way investment research is shared, and this affects every aspect of the client journey, as Rodwell explained.
“Some firms charge extremely high fees for their research,” he said. “We publish our own reporting on a weekly, monthly and quarterly basis, and making this accessible and affordable to our clients is a key part of the way Dolfin does business.”
The presentation continued with Amir Nabi, Dolfin’s Chief Operating Officer, explaining the new reporting requirements introduced by the directive. Post-trade, transaction and client reporting are all affected, as is execution. Dolfin has put in place systems to handle all these aspects of the asset manager’s client journey on behalf of our own clients.
“Our clients are our partners,” Nabi said. “We have listened to what you say about the challenges you face, and many of you have said MiFID II is an issue for you. We feel that it is a very positive step forward for the industry, and we want to find solutions together.”
Georgios Ercan, Dolfin’s Head of Sales, agreed that many asset managers expect and fear that MiFID II will bring a further increase in the consolidation trend. “Fund boutiques, smaller hedge funds and asset managers could be sold to larger peers, or find themselves absorbed into a large organisation under a multi-boutique model where several investment houses operate under an umbrella parent,” he said. “This is why we have created the shareable Dolfin infrastructure. We want to support our asset manager partners and enable them to concentrate on increasing their business, relieving the regulatory burden so they can focus on what they are good at.”
The evening concluded with a drinks and canapés reception, which allowed delegates to network and share their views on the impact of the legislation.
“Compliance topics can be challenging,” Nick McCall, Chief Executive Officer of Hay Hill Wealth Management, told Dolfin Diary. “There are issues where clarity is lacking, and a number of grey areas. So networking events like this are helpful as well as enjoyable on the social side. It’s a good excuse to get people in a room together. I hope Dolfin does a similar event around the General Data Protection Regulation when that comes into force later this year.”
Simon Dodkin, Head of Compliance for Guardian Stockbrokers, said: “It’s interesting to see the plan coming together. Some solutions are very relevant for me as a client of Dolfin’s execution services. We have been grappling with MiFID II for a while, as have other firms. The pace of change is rapid, and it’s hard to know whether technology will be able to keep up.”