EU launches last crisis-battling finance reform

’MiFID II,’ the last of the big reforms sparked by the financial crisis, entered into force Wednesday with the promise of improving financial market transparency. (Reuters)
Updated 04 January 2018
0

EU launches last crisis-battling finance reform

Paris: An EU directive called “MiFID II,” the last of the big reforms sparked by the financial crisis, entered into force Wednesday with the promise of improving financial market transparency and offering better protection to investors.
“MiFID II marks a real watershed moment for financial regulation,” said Catherine McGuinness, head of the City of London Corporation lobby group.
“It will be the last major piece of regulatory reform following the financial crash of 2008,” she said in a statement Tuesday, adding that “financial and professional services firms have worked hard in recent times to implement these onerous and complex changes.”
It is that very complexity that caused the implementation of the directive, first planned for January 2017, to be postponed by a year to give companies time to adapt.
Some financial market operators in Germany, Britain and France were given even more time, in some cases until July 2020.
Adopted in May 2014 the new rules — whose full name is “Markets in Financial Instruments Directive” — are to address the weaknesses that became apparent during the financial crisis of 2008 and 2009.
They also aim to give retail and institutional investors extra layers of protection.
“The new rules will subject all businesses involved in the distribution and trading of financial instruments across Europe to a changed, and in many cases, more stringent regulatory framework,” rating agency Standard and Poor’s said Wednesday.
“Over the longer term, the disruptive nature of this major regulatory change will become more apparent, and the winners and losers will likely emerge more clearly,” said S&P analyst Giles Edwards. “There will likely be more losers than winners.”
Banks, asset managers, brokers and other market operators will all have to grapple with the new measures and supply proof to supervisory bodies that they are playing by the rules.
This implies, among other things, major new information technology capacity and a deep transformation of workflows to guarantee the viability of information.
For example, the directive forces companies to identify their target investors for each type of security on offer, and measure the level of financial knowledge of customers and their capacity to take on risk.
It also extends protection measures to professional investors that were previously granted only to retail investors, and obliges them to warn clients in the event of strong volatility in their investments.
The directive also strengthens transparency requirements for share investments and broadens them out to other financial instruments, including bonds and derivatives, trades in which must now be reported before and after each transaction. Failure to do so will result in fines.
Financial companies will also have to provide detailed information to clients of the cost of trading in financial instruments, notably by separately identifying charges and commissions.
The aim is to shed more light on the earnings of intermediaries and limit over-the-counter deals seen as too opaque.
There will also be additional controls over electronic trading at great speeds, such as high-frequency trading.
In addition, the directive obliges banks and brokers to charge for research notes written by their analysts for investment fund clients and portfolio managers.
Such notes help investors make informed decisions on companies or economic data.
Research is often used as a marketing tool by banks and brokers when they approach clients but its price is a topic of debate, as is what goal banks and brokers are actually pursuing by disseminating their insights.
“The question the regulators are asking investment banks is: Who is your client?” said Maxime Mathon, head of communications at research body AlphaValue.
“When you are a big investment bank working for an asset management company you sell it your research, but also conferences with management of this or that company. In fact you are at the crossroads between the issuer and the investor,” he told AFP.
It follows, according to Mathon, “that you are no longer independent because you are selling access to a company more than you are selling critical research on that company.”
MiFID II’s call for a breakdown of research costs will, it is hoped, improve transparency.


‘Saudi Inc’ author says no shows won’t dent KSA investment appeal

Updated 23 October 2018
0

‘Saudi Inc’ author says no shows won’t dent KSA investment appeal

  • Ellen Wald said there was an element of symbolism in the decision by some executives not to attend the Future Investment Initiative
  • Wald also said that the absence of many big name investors from the US and Europe might hand an advantage to other potential business partners

RIYADH: An American expert on US-Saudi business affairs believes that the withdrawal of some senior business leaders from the investment conference that opens in Riyadh today does not reflect the Kingdom’s commercial attractions.
Ellen Wald, president of the Transversal Consulting think-tank and author of the recent book “Saudi Inc,” told Arab News that there was an element of symbolism in the decision by some executives not to attend the Future Investment Initiative in the Saudi capital, and that many business people were still looking to do business there.
“I think the big pull out of CEOs is not really reflective of the corporate interest in the Kingdom because we see them sending their next level of executives along. So to some degree it (the CEO pullout) is symbolic. I think what they experience here this week will have an effect,” she said.
Wald also said that the absence of many big name investors from the US and Europe might hand an advantage to potential business partners in other parts of the world.
“In terms of attracting foreign investment, Saudi Arabia could have strategic leverage with Russia and China, and a unique opportunity to work on cutting edge technolgies,” she said.
Wald was speaking at an event organized by the King Abdullah Petroleum Studies and Research Center to discuss her book. She said that Saudi Arabia had a greater need for technology and know-how than for cash investment.
“With regard to foreign investment, it is not about extracting money, but about extracting expertise. The Saudi model has been to hire outside industrial talent, for example the Public Investment Fund and its cinema partner AMC. They are buying expertise in the same way that the Saudis bought in expertise with Aramco, all those years ago. Eventually they (PIF) will buy the cinemas out or bring in somebody else to run them,” she added.