SEC Allows MiFID II No-Action Relief to Expire, Legislators React

On July 3, the Securities and Exchange Commission (SEC) allowed an almost 6-year old MiFID II temporary no-action relief letter to expire relating to the bundling of investment research. MiFID II (Markets in Financial Instruments Directive II) is the European Union’s (EU) legislative framework for financial markets. In January 2018, MiFID II and related regulations were implemented, and investment managers subject to MiFID II were required to unbundle payments for research from payments for trade execution. Under the now-expired relief, the SEC committed that Commission staff would not recommend enforcement action under Section 202(a)(11) of the Advisers Act against a broker-dealer providing “investment advice” to an investment manager that was required by MiFID II to pay for research with its own funds or with “hard dollars” passed through a separate research payment account. As part of the EU’s regular review of the Directive, the EU and the United Kingdom are considering whether to ease the unbundling requirements in the coming months. In reaction to the expiration of the no-action relief, SEC Commissioner Mark Uyeda stated. “I am disappointed that the SEC staff has decided not to extend the MiFID II Relief for a modest additional period to accommodate these potential changes.”

In response, on July 11, the U.S. House of Representatives passed H.R. 2622 which would amend the Investment Advisers Act of 1940 to codify the now expired no-action letter and exclude broker-dealers who are compensated for investment research from the definition of "investment adviser." The measure passed by a voice vote indicating overwhelming bipartisan support in the House.

Click here to read Commissioner Uyeda’s remarks on the expiration of MiFID II no-action relief.