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

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.

Russia fund boss sees no drop in foreign investment to Saudi Arabia

Kirill Dmitriev said FII is a great platform to drive opportunities and transformation. (SPA)
Updated 23 October 2018

Russia fund boss sees no drop in foreign investment to Saudi Arabia

  • We believe Saudi Arabia has a lot of investment potential and supports the process of transformative and historical reforms in the Kingdom, said Dmitriev
  • From the Russian perception, Saudi Arabia is a great partner, said RDIF’s head

RIYADH: The head of the Russian Direct Investment Fund (RDIF) believes that the events of the past few weeks have made little impact on Saudi Arabia’s attractiveness to global investors, and is preparing to invest “billions of dollars” in the Kingdom.

Kirill Dmitriev, the RDIF chief executive, told Arab News on the sidelines of the Future Investment Initiative (FII) in Riyadh that the event was a big success and “a great platform to drive opportunities and transformation.”

He added that the FII’s opening day had been well attended by chief executives from across the Middle East, Europe and the US, with a “big Russian delegation.”

Dmitriev expressed his regrets at the tragedy in Istanbul, in which journalist Jamal Khashoggi was killed at the Saudi Consulate, and welcomed the actions taken by the Kingdom to investigate the case. 

“It is too early to talk about any kind of shortfall in Western investment in Saudi Arabia, despite the tragic events in Istanbul. The Saudi market is more attractive now than it was three or four years ago, and I don’t think there has been any change over recent weeks,” he said.

“We believe Saudi Arabia has a lot of investment potential and supports the process of transformative and historical reforms in the Kingdom. In particular, we support Vision 2030, which is significant not only for the economy and people of the Kingdom but for the Middle East region and the whole world.”

Earlier at the FII, Dmitriev told a gathering of business executives and policy-makers that the goal of the RDIF was “economic development through partnership.” He said such partnerships include links with Saudi Arabia’s PIF and Aramco, with which RDIF has embarked on a number of initiatives in energy and infrastructure.

Last year, the three established a platform for Russian-Saudi energy investment, which aims to identify attractive investment opportunities in Russia. This was accompanied by a joint platform for technology investment, Dmitriev explained.

“From the Russian perception, Saudi Arabia is a great partner. It is not just about energy and oil, but about the historic vision and transformation,” he said.

RDIF has been actively collaborating with PIF since 2015. They have invested over $2 billion together and are now considering over 10 new projects totaling more than $1 billion, Dmitriev said.

“The industries benefitting from these investments range from sectors including … petrochemicals, industrial manufacturing, logistics, infrastructure and technology,” he added.

“Currently, we are discussing the opportunity to jointly implement some projects in Saudi Arabia in different sectors. The projects are related to the localization of petrochemical production, the provision of service contracts and the subsequent creation of joint ventures. RDIF and our partners can bring billions of dollars of investment to the Kingdom.”