While Deutsche Bank is looking to reap new revenues once the regulation takes effect, its asset management unit has confirmed it will not pass MiFID II-related costs onto its clients.
For Germany’s largest lender, a new wide-reaching European directive presents an opportunity to turn profits, not lose them.
Deutsche Bank plans to win trading business by helping ease clients’ transition to the second iteration of the European Unions Markets in Financial Instruments Directive, or MiFID II, which enters into force in just a few months’ time.
The lender will set up a new fixed-income trading platform, assuming responsibility for gathering and reporting transaction data for clients, alleviating some of the more than $1.1 billion in MiFID II-related compliance costs for money managers.
To do this, Deutsche Bank will establish itself as a systematic internaliser (SI), sometimes known as market maker, for bonds and derivatives, both of which are key parts of the lender’s business that have slipped recently.
“By registering early as a systematic internaliser, we will be in a position to help clients by taking on post-trade reporting duties as soon as the obligations come into force,” Mario Muth, head of fixed income electronic sales and head of fixed-income market structure at Deutsche Bank, said in a statement. “For clients, this removes one of the challenges to comply with the new regulation and creates certainty when trading with Deutsche Bank.”
Meanwhile, for asset and wealth managers, MiFID II will likely be a costly ordeal. The directive, which will for the first time require money mangers to separate the costs of investment research from trading fees as of 3 January, 2018, is estimated to cost the asset management industry more than $1.1 billion, according to data from IHS Markit and Expand, the Boston Consulting Group-owned firm. Over half of this figure will be spent on enhanced reporting and injecting more transparency into the sector, the data suggests.
Asset managers are weighing whether or not to pass the costs of equity research onto clients, or to foot the bill themselves. Last month, Deutsche Bank’s asset management unit said it would absorb the costs, following in the footsteps of several rival firms including BlackRock, Vanguard, Invesco and JP Morgan Asset Management.
There is a general consensus that the funds industry is moving to cover the costs, but Amundi, BNP Paribas and Carmignac are among the small number of firms that have said they will let their clients take the hit.
Yet almost half of the UK's fund houses have yet to declare their position, according to Alpha FMC, an asset and wealth management consultancy.
The firm's analysis suggests that 40 per cent of fund managers in the Investment Association top 50 have made no comment on whether they will charge clients or not for investment research ahead of MiFID II transposing into law.