MiFiD II and Research unbundling: what is behind the latest AMF guidelines?

The AMF just released  its guidelines on Research funding under MiFID II. This document provides investment firms and asset managers offering investment services with interesting clarifications.

First of all, the AMF confirms the exemption granted to fund management. The definition of research material and documents is also clarified, with publicly available documents considered by default as non-monetary benefits. One additional point is the ability to setup trial periods with providers to test the quality of research. This is a welcomed flexibility given to asset managers. And last but not least, when the cost of the mandate does not change for the client, no formal agreement on the Research budget is needed, a simple notification would be enough (even if the client can still object the budgetof course). This is a way to limit the repapering workload for Legal teams that will be quite busy until the end of the year due to MiFID II.

You will find below the key attention points we retained, please do not hesitate to comment and share your thoughts on this tricky topic.

Entities & services impacted

  • All investment firms are obviously in the scope of the regulation.
  • Fund Management is out of the scope, however MiFID II research provisions apply to UCITS & AIF Managers  for  their third-party portfolio management and independent investment advice activities.

Research definition

  • Research material or service should allow building an opinion on financial instruments, markets or issuers. Such material or service should recommend or suggest an investment strategy and should provide throughout advices, including an in depth analysis with original views and conclusions.

Asset classes in scope

  • All asset classes (Equities, Fixed Income) as well as Macroecomic research are in the scope.
  • Firms have to do their own assessment to determine what is a minor non-monetary benefit.
  • Nevertheless, publicly available research material can be considered by default as a minor non-monetary benefit.

Non-EEA providers

  • Non-EEA research providers have to unbundle their research costs to help MIFID II firms complying with the Regulation. This position confirms that MiFID II will have major impacts outside Europe, even on markets where unbundling is not the market practice.

Trial period for a new provider

  • The AMF allows a trial period  during 3 months, on a limited scope of Research services/material previously agreed between the provider and the user. This is good news as it will allow clients testing the quality of Research from a new provider before entering into relationship.
  • No cost can be reinvoiced to client.

Unsolicited research

  • Firms have to filter or block any unsolicited research received.
  • It concretely means that a clean up of research providers mailing lists is absolutely key as every piece of research received should be paid for.

Budget validation for mandates

  • The portfolio manager and the clients validate (« convienent» in French) a budget. When the budget and the frequency to pay for research do not change, a formal agreement from the client is not needed.
  • Regarding existing mandates this principle is also applicable. It means that if the overall costs paid by the client and the frequency to retrieve fees do not change, a formal client agreement is not needed. This position will limit the repapering of existing contracts.
  • In all cases, the client still has the ability to object the research budget.

Budget at Investment Strategy level

  • It is possible to define a budget at Investment Strategy level and then allocate it across portfolios if they share the same strategy
  • The allocation key is not detailed but AUM was in the past considered as acceptable by the AMF