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MiFID II throwbacks: party like it’s 2017?


When I connect with capital markets professionals across the sell side, buy side and corporate space there are two topics that are front of mind at present – the expiry of the SEC no-action letter that provides relief on MiFID II unbundling rules, and the role of generative AI within the advisory business (more on the latter in a future post).

While there is a potential stay of execution with a House Financial Services Committee recommendation that the no-action letter be extended by six months, the breadth of regulatory activities underway in the UK, EU and Asia-Pacific give a foreboding sense of familiarity – this feels a lot like 2017 all over again.

The scale of regulatory activity and market uncertainty are at levels not experienced since those last months before MiFID II came into force, occurring at a time of increased economic constraints and market consolidation.

So in this short post, we thought it would be helpful to summarise the regulatory activities underway, present some of our thoughts on how we expect things to play out and what actions sell side firms can take to protect and grow revenue.

The table below presents a summary of the regulatory activities related to MiFID II that are currently underway.

Location Who Initiative Status Commentary
UK FCA UK Financial Services and Markets Bill 2022 Implemented
  • Exemption applies to research on listed and unlisted issuers with a market capitalization below £200 million, where research is provided on a re-bundled basis or for free.
UK FCA Investment Research Review (Edinburgh Reforms) In Progress
  • Will analyse interplay between research and the attractiveness of the U.K. as a listing venue
  • Rebundling will be considered 
  • Will report within three months making recommendations for legislative and non-legislative changes
USA SEC No-action letter expiry July 3, 2023
  • Will require U.S broker-dealers that receive or continue to receive “hard dollars” for research to consider alternatives
  • On February 21, 2023, SIFMA called for the SEC to extend the current no-action relief to allow broker-dealers to receive cash payments for research, referring to the potential for the MiFID II research rules to be rolled back since both the EU and U.K. are re-assessing the rules
  • Swedish Presidency proposed allowing bundling of execution and research
  • On May 25, 2023, the HFSC voted to direct the SEC no-action relief by six months
EU SEC EU Listing Act In Progress
  • The Commission has noted that EU MiFID II rules on unbundled research have failed to achieve all of their objectives
  • Extend exception to capture issuers with a market capitalisation below EUR 10 billion
  • On 2nd May 2023, EC proposed removing any market capitalisation limitswhere separate payments may be too cumbersome
  • Would still be subject to other EU MiFID II rules on conflicts of interest
  • AFME unconvinced on proposals


The key takeaways from the initiatives are that we are seeing a scaling back of unbundling provisions, and while full rebundling may be some way off, the direction of travel is clearly heading towards less unbundling of research and advisory services, not more.

The implications of these changes are that while we operate somewhere in the middle of the bundled / unbundled continuum, additional changes increase complexity for market participants and require them to consider their operating models:

Area Implications of current regulatory activities Impact
Research payment method
  • We are unlikely to see significant changes. Those that have chosen to pay P&L will not go back to asset owners to ask for payment due to competitive and operational considerations. Those that pay via commissions will continue to do so
  • In terms of method, firms are considering setting up or using existing CSA / RPA structures to pay for services and reimburse clients where P&L is the chosen payment method
Assessment and valuation
  • While interaction based assessment and valuation has its drawbacks, it is an effective way of assessing quality and level of service and is now well embedded into processes
Access to US research
  • Time is running out for a “Hail Mary” and while it may come, providers and consumers are making provisions to deal with the changes
  • We expect research providers to either accept “hard dollar” payments via a EU / UK office or an RIA registered entity
  • Some buy side firms may also consider setting up or using existing Research Payment Accounts (RPA) – either P&L or asset owner funded, to procure services
  • Finally, some buy side firms may seek alternative solutions (such as independent research providers and expert networks) for access to similar services
  • Questions for research providers to answer on subsidisation of costs across different regions and payment methods
Additional carve-outs
  • Requires ongoing tracking of what falls in / out of market capitalisation and revenue boundaries
  • Complexity of entitlements, valuation and payment
  • Incentivisation of analysts and sales professionals who now produce bundled content and services


So what should sell side firms be doing now, and preparing for in the future to take advantage of increased uncertainty and relaxed unbundling rules? We have some thoughts on the opportunities available:

Initiative Activities Impact
Productisation of research offering
  • Deconstruct research content and services into products to help manage carve-outs, while also taking advantage of regulatory changes to offer services to attract new clients
  • In addition, sell side firms are developing new offerings (e.g. data products) that fall outside of the unbundling rules and market uncertainty and deliver additional benefits to clients
  • Finally, sell side firms are also exploring ways to differentiate their research offerings to stand out from the crowd – HTML5 research, multimedia and interactive content and portals are some of the ways we are seeing clients capturing value from innovating their research products
  • Increase number of clients
  • Increase revenue
  • Reduce operational overheads
Automated entitlements management
  • Leverage technology solutions to manage entitlements and interests to ensure compliance with new rules (e.g. integrated market capitalisation data with product taxonomy)
  • Reduce operational overheads
  • Reduce operational risks
Client strategy reporting and analytics
  • Review the client base with respect to revenue generation and consumption of services
  • Understand which firms are consuming which types of research services (e.g. US equity research, small cap research etc.) and tie consumption to revenue risk and make decisions around servicing and editorial strategy
  • Leverage data analytics to identify clients at risk faster (based on consumption or revenue trend changes)
  • Reduce revenue risk
Increased new client prospecting 
  • With the carve-outs and relaxing of unbundling rules, there are more opportunities for firms that demonstrate their ability to deliver services that address Buy Side fears around regulatory non-compliance
  • Increase number of clients
  • Increase revenue
Distribution partnerships
  • There have been a number of mergers and distribution partnerships announced in recent months, and we expect similar trends to continue
  • Sell side firms can expand their market share in new geographies with less regulatory uncertainty, or leverage operating models (e.g. RIA status or EU offices) to deliver US research in line with regulatory expectations.
  • Increase number of clients
  • Increase revenue


Overall, while the situation has increased uncertainty for all market participants, it has created impetus for firms to think differently about how they deliver their services and capture value.

Through the combination of business strategy, data analytics and workflow tools – the current changes can be leveraged to increase revenue, reduce operating costs and expand market share. It may feel like a throwback to 2017, but just like then, there is an opportunity for firms that are well prepared, to drive growth and business efficiency.

Brijesh Malkan

Brijesh Malkan

Published: 27/04/2023