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Asia's Asset Managers Beware: Europe's MiFID II Rules Affect Them Too

Tom Burroughes

28 November 2017

Asset managers in Asia might think that the upcoming European Union regulatory juggernaut known as MiFID II will be a distant issue but the directive could be more important than firms might suppose, according to international law firm , Asian asset managers that think they may be affected should start investigating what is required of them, such as providing benchmarks that are in line with EU standards,” he continued.

The law firm commented on a raft of regulatory developments hitting financial professionals’ desks at present and in the next few months. MiFID II is a set of rules forcing firms to be more transparent on investment costs and charges, and disclose more information about advice, so as to reduce future mis-selling and financial problems. Already, MiFID II is encouraging firms to change how they pay for analyst research. 

Any firm, even if it is located outside the EU, that does business with EU-based investors potentially comes within MiFID II’s remit, an example of how such rules can have an extra-territorial impact. MiFID II means Asian asset managers could be asked by EU counterparts to help them fulfil their requirements, so that those EU firms are compliant under the new rules.

So far, much of the argument has hinged around how EU-based firms will be affected, but the broader reach of such regulations has been less of a focus.

In other area of financial regulation, the law firm pointed to another set of issues it sees bubbling up in 2018: artificial intelligence; the effect of crypto-currencies on money laundering; a new “manager-in-charge regime in Hong Kong, and how Hong Kong’s Securities and Financial Commission watchdog is going after insider dealers.

“Despite associated risks such as reduced transparency and the potential for data breaches, we expect that AI and big data analytics will continue to revolutionise the financial services industry. Whilst regulators around the world are still experimenting with AI, especially for fraud and AML detection, we expect to see Hong Kong authorities catching up with their peers and using AI to counter both cyber-crime and market misconduct,” Ian Wood, partner and head of Simmons & Simmons corporate and commercial practice in Asia, said. 

Paul Dorrans, consultant at Simmons & Simmons, weighed on increased regulations of crypto-currencies: “The decentralized nature of the technology that underpins cryptocurrencies presents unavoidable AML risks. Regulators are increasingly concerned by this. Regulators and financial institutions should cooperate to ensure that appropriate due diligence is undertaken on firms operating in the market for cryptocurrencies and that the regulatory regimes in different countries, for AML and KYC, are as closely aligned as possible with global standards. A tighter and more specific regulatory framework for cryptocurrencies could enhance their legitimacy and utility in the financial markets, but care is needed so as not to unduly stifle innovation.”