The EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the way that its securities and derivatives markets are regulated. While the impact of the 148-page document will affect every nook and cranny of financial markets, one of the most significant impacts will be on investment managers.
Phil Thornton looked at the challenges that fund managers and their advisers faced in two article for the magazine and website of the Chartered Institute of Securities and Investment.
The first looked at one of the most important issues – the need for sell-side companies to separate charges for execution from charges for access to research. Phil spoke with a number of fund managers and advisers to get an idea of how prepared they would be for MiFID II. The good news was that it showed that more than 60% have already set, or begun to set, their research budgets, and are making decisions on which payment methods to use. The article is here.
The second identified the sizkey themes that financial participants need to bear in mind: governance; advice; trading and execution; fees and inducements; corporate governance; and trsnaparency. The article is here.
Grosvenor, the property company, has produced an incisive report into the impact demographic shift towards older populations will have a profound on society and the social fabric of cities. The report, Silver Cities, looks at how cities will need to adapt and develop a number of short and longer-term strategies to ensure they respond adequately to both the challenges and opportunities that an ageing population present.
We assisted with the writing of coure case studies in cities around the world that showed how different cultutres and policy practices might influence how the relevant authorities could mitifate and adpt to those changes. The four cities were: London; Vancouver; Hong Kong; and Madrid. The case studies and full report are here
Phil Thornton contributed two articles to the latest edition of the EMEA Finance magazine out in February 2018. The first was based on a talk with Kristina Georgieva, the new chief exucirve of the World Bank. At the heart of her agenda is achieving the multilateral’s goals of eliminating extreme poverty by 2030 and boosting shared prosperity. Georgieva, who was EU Commissioner for Humanitarian Aid, sees her mission as turning this instrument into an “incentive for people to do the right thing”. “If a country has a lend-management policy for forestry to be protected, not to be chopped down, then the insurance premium ought to have a discount. As a donor, as a finance community, we are funding this discount.” The other angle is to focus on middle income countries — where 50 per cent of poor people still live — and especially in higher-risk economies where the task is to make sure that jobs are created. The article is here.
The second article was an analysis of the success that Bahrain has had in attracting foreign investment to the small island kingdom. We looked at how Bahrain’s economic development board has set out a strategy to attract foreign direct investment and SMEs that will both create jobs and help the Kingdom exploit modern technologies.EDB managing director Simon Galpin set out why Bahrain was investing in a whole raft of projects valued at over £32bn, is equivalent to oits annual GDP. These include the expansion of the airport, the US$5bn upgrading of all the major oil refineries in Bahrain, the enlargement of the Alba aluminium smelter to make it the largest in the world, and a second direct connection to the Eastern Province of Saudi Arabia for both road and rail to connect to Saudi Arabia and complement the existing King Fahd Causeway. The second factor is what Galpin calls “soft infrastructure” — reforms of business regulations that allows 100% foreign ownership and a revision of insolvency laws aimed at fostering innovation and entrepreneurship by modernising and streamlining the bankruptcy procedures.“ The third trend, which is connected to the regulatory overhaul, is the decision by the Central Bank of Bahrain to introduce the first “regulatory sandbox”. The article is here.
In a series of interviews carried out by us for EMEAfinance magazine, leading Bahraini policymakers issued a defiant response to the downgrades of its sovereign debt by a leading credit ratings agency and the decision by the International Monetary Fund to forecast a slowdown in economic growth. A senior director at the central bank accused the rating agencies of “exaggerations” and of basing their assessment on news reports, while the country’s Economic Development Board said the government had struck the correct balance between reducing the deficit and supporting growth. The article can be found here.
The interviews were held as part of a fact finding trip for EMEAfinance during the 2017 World Islamic Banking Conference in December 2017. A fuller report will follow shortly.
What happened the billions of pounds in fines on banks levied by UK regulators was the subject of our analysis for The Review, the magazine of the Chartered Institute of Securities and Investment. Since the onset of the global financial crisis in late 2007, the FCA and its predecessor, the FSA, have handed down a total of £3.6bn in fines.
Up until 2013, the FCA had kept all income from fines and used it to subsidise the cost of
fees to the banks; until then-chancellor George Osborne announced that fines paid by
banks and others who broke the rules would go to the “benefit of the public and not to
other banks”. Since then, the FCA has transferred approximately £2.9bn to the Government.
It is hard to identify what has happened to the money but analysis of government announcements shows that £424m went to support the armed services covenant while £101 went to museums and galleries. Campaigners for greater transparency in fifnnace told us that fines would be best used to improve standards in that sector and put measures in place to prevent malpractice happening again. The article can be found here (£).
We were asked by the Financial Times to contribute our views on a range of issues which have the potential to affect the UK economy during 2018. On overall growth, we said the economy will slow in 2018 as the uncertainty created by the stop-start Brexit negotiations nags at consumer and business confidence and at investment intentions. A drop to 1.5% from 1.8% in 2017 seems likely. The interesting comparison is with the eurozone, which could post growth as high as 2.4 per cent. Those data will be confirmed in spring just as the UK will leave the EU — a timely reminder of the damage that the UK is doing to itself by leaving.
On Brexit we said that it will either be possible to stay within a/the single market and a/the customs union or even that opposition to Brexit itself is starting to grow. Either there are now hopes that the UK will get as bad a deal as feared a year earlier.
On the consumer economy, we said the downward pressure on consumer spending that has so far come from a fall in real wages is likely to continue. Our other concern is the mountain of debt that consumers are building up and whether any of the bubbles in personal loans, credit card debt, and car loans will burst.
A year ago we contributed to the 2017 survey in which we said we predicted that growth would slow sharply, that inflation would rise and the negative impact from Brexit had been postponed rather than cancelled.
We assisted with the coverage by the magazine GlobalMarkets of the annual meetings of the IMF and World bank that were held in October 2017 in Washington DC. GlobalMarkets is the new name for the magazine Emerging Markets that has covered the meetings of all the multilateral banks for a quarter of a century.
We wrote a number of features analysing key issues that came up at the meetings of the finance ministers and central bankers of the 187 member countries. Two of the features looking at the outlook for the two institutions: the first examined the new strategy of World Bank President Jim Yong Kim to become a catalyst for private finance here; and the second looked at the role that the IMF should play after the recent crises here.
We supported these with on the capiral increase based on a question to Mr Kim (here), an interview with WB vice president Axel van Trotsenburg on funding for the poorest countries (here), and a warning byb a senior WB economist on corporate debt in emerging economies (here).We also contributed a review of the racy account of a life in banking and Buddhism by Michael Dobbs-Higginson here.