Non-EU managers can continue to bundle trading costs and research costs as long as the two are distinguishable from each other, the European Commission has said.

The Commission today published guidance detailing how MiFID II rules on the provision of investment research would apply to non-EU managers with clients inside the bloc.

In a statement, Valdis Dombrovskis, the Commission’s vice-president for financial services, said the guidance would provide “greater clarity” on the new requirements.

The guidance states: “The MiFID II portfolio manager or its third country sub-adviser which operates a [research payment account, or RPA] is responsible for managing its research budget based on a reasonable assessment of the need for research and subject to appropriate controls, which include maintaining a clear audit trail of payments made to research providers.

“In addition, the MiFID II portfolio manager or its third country sub-adviser which operates an RPA must be able, at all times and based on its own internal allocation/budgeting process, to identify vis-à-vis its own clients the amount spent on research with a particular third country broker-dealer.”

In a related announcement today, the US regulator confirmed that US-based asset managers and broker-dealers would not be in breach of US law when complying with MiFID II’s cost unbundling requirements.

The Securities and Exchange Commission (SEC) said it would grant a 30-month window for managers to find a way to unbundle research costs from trading costs for European clients, while still complying with US rules.

In the US, asset managers usually pay for brokerage services and research through a “bundled” commission payment, which runs contrary to MiFID II rules. Investors had expressed concern that they could lose access to “valuable” research, the SEC said.

SEC chairman Jay Clayton said the “no-action relief” was designed in conjunction with European regulators and the European Commission.

The SEC said in a statement: “Subject to various terms and conditions: broker-dealers, on a temporary basis, may receive research payments from money managers in hard dollars or from advisory clients’ research payment accounts; money managers may continue to aggregate orders for mutual funds and other clients; and money managers may continue to rely on an existing safe harbour when paying broker-dealers for research and brokerage.”

During the 30-month period, which begins on 3 January when MiFID II is implemented in Europe, SEC staff will monitor the impact of the European rules in order to decide on what (if any) longer-term action is needed.

Andrew Bailey, chief executive of the UK’s Financial Conduct Authority (FCA), said: “In supervising the MiFID II inducements and research provisions, and cross-border practices by firms in this area, the FCA will focus on ensuring investors’ interests are advanced.

“Arrangements which comply with MiFID II and other jurisdictions’ rules, while enabling EU firms’ continued access to research produced by US and other non-EU jurisdictions, are likely to be the best way of serving investors.”

According to IPE’s list of the biggest 120 managers of European institutional assets, 54 are based partially or wholly outside of the EU in countries such as the US, Switzerland, Canada and Australia.

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