France’s AMF launches consultation paper on MiFID II

French regulator AMF is seeking feedback on its proposals concerning the funding of research by investment firms under MiFID II. Published on 12 September, the AMF consultation paper is the first response of a national regulator to MiFID II. 

“Given the forthcoming transposition of the revised markets in financial instruments directive (MiFID II) and the delegated directive published on 7 April, the AMF wishes to consult operators and associations in the Paris marketplace about the principles for the operational implementation of the new rules governing the funding of research,” said the AMF in its consultation document. 

Since the European Commission’s legislation is a directive, it will still have to be implemented into national law by national authorities in each EU member state. Under the new rules, the provision to investment firms (IFs), and particularly firms that provide portfolio management services, of research documents published by financial intermediaries or research firms, will now fall within the regulated category of inducements. Article 13 of the Delegated Directive of 7 April 2016 describes how “inducement” rules should be applied to the particular case of the provision of third party research to investment firms. More specifically, Article 13 now requires the funding of research through one of the following two methods: - Direct payment for research using the IF’s own resources; or - Payment charged to the IF’s clients but from a separate research account, as agreed with the client and monitored by the IF, under certain operational and transparency conditions. 

The AMF points out that this provision is a major innovation as, under MiFID I, the provision of research was never treated as a form of inducement. In accordance with Article 93 of MiFID II, it will enter into force on 3 January 2018 after its transposition into national law, which must be completed before 3 July 2017. Article 13 of the Delegated Directive will therefore be enacted in French law. This enactment is expected to take place through the AMF’s General Regulations, a draft version of which will be presented to the marketplace at a later date and be subject to a separate consultation, according to the AMF. 

Questions covered by the AMF paper include a proposed definition of services covered by the term “research”, including the criteria, as well as operation of the research budget including budget monitoring and allocation, as well as the operation of the various types of research payment account and commission sharing agreements under the new regulatory framework. The AMF document says that commission sharing agreements will still be authorised under certain conditions. However, operational processes for monitoring expenses charged under commission sharing agreements will need to be adjusted. Execution fees will need to be charged to client accounts separately from research charges, and research costs will need to be charged in accordance with the budget process outlined in the document.