EUROPE - The new standards for securities research may drive some investment firms to spin off their research functions, said European Commissioner for Internal Market and Services, Charlie McCreevy.
Speaking at the inaugural meeting of the European Association of Independent Research Providers in London today, McCreevy said that in order to simplify conflicts management, some firms may well spin off their research arms.
He added that Europe has no appetite for US style regulatory intervention, and questioned what will happen at the end of five years when the Global Settlement fund disappears.
The Global Settlement Fund came about on the back of New York Attorney General Eliot Spitzer’s investigation of Wall Street analysts concluded in 2003. Ten firms were fined and ordered to pay an additional $432.5m to fund independent research.
“In our view the Market Abuse Directive and the MiFID together should go a long way towards addressing the problems of bias in research which we saw so glaringly during the stock market bubble at the beginning of this decade,” said McCreevy.
MiFID adds to the Market Abuse Directive by setting out organisational requirements for investment firms handling conflicts of interest.
“The measures will say that if an investment firm wishes to present its material as research, it must adhere to some basic conflicts management standards,” he added.
“These are mainly about insulating the analysts from competing business interests such as those arising from corporate finance or from proprietary trading.”
Robeco CEO, George Moeller, added that regulators in Europe would ultimately create new industries, evidenced by developments in the US. “The market itself should prove that independent research has value for money,” he added.
France and the UK are the only two national regulators in Europe to have formerly addressed the issue of independent research to date.
That said, the fact recent rule changes in the UK, which demand fund managers executing with brokers outside the UK must be able to receive a breakdown of commissions by execution and research costs, could mean unbundled brokerage will take hold across the continent as a market driven initiative. A formal European Commission communication on research is due in June next year.
Separately, Commissioner McCreevy sidestepped a question on conflicts of interest in rating agency business models, but added that such firms were “under watch”, and that he “hadn’t put the file away yet”.
“I may come back to this some time during my term,” he added.
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