SEC MiFID Relief Expires; Commissioner Uyeda Objects
Commentary by Steven Lofchie
SEC Commissioner Mark T. Uyeda urged the SEC to engage in a "holistic review of the regulatory framework for investment research." The Commissioner objected to an SEC staff decision not to extend no-action relief that allowed broker-dealers to receive cash payments for research services from investment managers subject to the EU’s Markets in Financial Instruments Directive II ("MIFID II") without being subject to regulation as "investment advisers" under the Advisers Act.
The SEC Division of Investment Management's 2017 no-action letter expired on July 3, 2023. Mr. Uyeda said the SEC staff's failure to extend the 2017 relief will create "significant restrictions" for sell-side research and result in information from "less credible sources," such as internet speculation. This, he said, could impact market prices and increase volatility.
Separately, on behalf of SIFMA, SIFMA President and CEO Kenneth E. Bentsen Jr. stated that the decision not to extend the relief will (i) negatively impact U.S. research and the competitiveness of U.S. markets and (ii) risk loss of access to research services for buyside managers. He called the relief "critical" in the absence of a solution to the "conflicts of law problem" presented by MiFID II regarding the separation or "unbundling" of payments for research. By failing to extend the relief, Mr. Bentsen said that the SEC (i) is ignoring Congress’s request for an extension, and (ii) is allowing the MiFID II requirement to directly affect U.S. broker-dealers.
Commentary
Commissioner Uyeda is absolutely right that the regulation of research should be revisited. Good investment research is fundamental to rational investment. The SEC has for a long time operated under a regulatory scheme that treats investment research as inherently suspect. That scheme limits substantially the ability of firms to profit from their production of such research, thereby discouraging the production.