Survey: North American Investors Unprepared for 2018 European Rules

A SimCorp survey found that just 23 percent of North American investors are “extremely confident” they can meet new European Union regulations known as MiFID II.

Illustration by Alex Agius for Institutional Investor.

Illustration by Alex Agius for Institutional Investor.

North American investment firms are unprepared for new regulations under the Markets in Financial Instruments Directive that will take effect in January, according to a survey from investment services provider SimCorp.

The survey, released Wednesday, found that only 23 percent of investors are “extremely confident” they have a plan in place to meet requirements under MiFID II, the second phase of European Union rules that will require brokerage firms to unbundle research and trading fees. Seventy-seven percent said they are “either somewhat or not at all confident.”

With just nine weeks before MiFID II takes effect on January 3, there’s little time for North American investors who remain unprepared for the impending changes to position themselves for compliance. For example, firms will need to provide a “legal entity identifier” code in order to engage with European clients or make trades through brokers in the E.U., according to Gernot Schmidt, product manager of MiFID II at SimCorp.

“It could come as a surprise that their investment manager requires this code to continue trading on their behalf on E.U. venues,” Schmidt said in a statement. “The sheer volume of asset classes and instruments concerned makes it clear that the implementation extends far beyond a simple database project.”

In September, SimCorp surveyed 150 asset managers across 68 firms in North America about the global reach of MiFID II, which Schmidt calls “one of the biggest pieces of regulation to ever hit the buy-side industry.”

The firm found that 28 percent of respondents are still unsure if and how their firm would be impacted by the changes, and that many North American institutional investors don’t yet have the identifier code required for firms to engage with their European clients.

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Complying with transaction requirements and understanding the new market structure under MiFID II are among the biggest challenges that investors face, according to the survey.

“The new transaction reporting requirements rate high on the list of concerns,” Schmidt said in the statement. “Daily detailed transaction reporting will be expanded to a much larger set of instrument types.”