MiFID Research Bundling: Will the Expired Relief for U.S. Broker-Dealers be Reinstated?

Markets in Financial Instruments Directive (MiFID II) reformed the way that research was paid for in Europe. Bundled arrangements which combined payments to brokers from asset managers for execution and research services were no longer acceptable with the latter requiring separate and distinct payments either from P&L or research payment accounts. The stated aim – reduce conflicts of interest and prevent inducements. 

As has been well documented, these new European rules caused conflict with U.S. legislation which would result in U.S. broker-dealers receiving separate payments to be considered Investment Advisers under the Investments Advisers Act of 1940. The SEC issued relief in the form of a “no-action” letter in 2017 which allowed these payments to be received from EU asset managers without falling foul of the provisions in the Advisers Act. That relief finally expired on 3rd July 2023, after the initial expiry date in 2020 was extended.

The SEC allowing the sun to set on this relief has drawn criticism¹ and there appears to be an overwhelming desire for it to be extended indefinitely². It is therefore no surprise that trade bodies, such as SIFMA³, heaped praise on the House of Representatives for passing a bill on July 11th (just over a week after the final expiry of the no action letter provision) which directs the SEC to extend the MiFID II no-action relief for a further six months. The proposals are now on their way to the Senate's Committee on Banking, Housing and Urban affairs before potentially and ultimately being enacted.

As with most things, timing is everything. The passing of the bill, which was first introduced to the House of Representatives in April, coincides with the UK Chancellor of the Exchequer’s annual Mansion House speech. Jeremy Hunt earlier this week once again took the opportunity to highlight the greater freedoms and autonomy the UK has gained through Brexit, and in particular raised the matter of being able roll back on the unbundling research rules that MiFID II brought in. 

With the UK and EU both imminently seeking to modify the MiFID II research rules further (some softening has already occurred with research in the fixed income space or that which relates to those firms with a small market cap now falling out of scope) perhaps the reintroduction of this relief from the SEC will fall nicely. By the time it expires (again) we could find ourselves in a position where the changes that caused the conflict in the first place have been repealed or changed beyond recognition, and the conflict of law with the Advisers Act no longer exists.

How we help

Contact us to connect with our London-based SEC consultants, who can advise you on how this impacts your firm. This team provides regional SEC regulatory support to European investment managers and advisers doing business in the U.S. and attracting U.S. investors. Or for MiFID related queries, we can connect you with our European regulatory advisors who are on hand to provide support and consulting services to FCA registered firms, wherever they are in the world.

¹ https://www.sec.gov/news/statement/uyeda-statement-staff-no-action-letter-07-05-2023 
² https://www.greenwich.com/market-structure-technology/expiration-mifid-ii-no-action-letter
³ https://www.sifma.org/resources/news/sifma-statement-on-house-passage-of-bill-related-to-mifid-ii-no-action-relief/