Fears over scrutiny in shake-up of brokers

NEW European rules expected to herald the biggest City shake-up in a generation come into force this week.

Experts fear the new Markets in Financial Instruments Directive could stifle broker research – a staple in the City for decades – which shines a light on company and markets performance.

MiFID II, as it is better known, is aimed at protecting investors and increasing transparency in financial markets.

The most controversial change involves so-called ‘unbundling’, where fund managers will pay brokers for research and trading costs separately instead of paying for them together in a lump sum.

It has led to concerns that less analyst research will be carried out, reducing scrutiny of the City.

However, it is understood that many large City firms plan to absorb the costs of research rather than charge investors. That could cause a cost squeeze and lead to job losses for some analysts at smaller City brokers.

The legislation is being introduced by the EU but the Financial Conduct Authority supported the changes, which come into effect on Wednesday.

Firms that do not comply with the new legislation face multimillion pound fines.

A report earlier this month by internet service provider Timico revealed that 39 per cent of the UK’s financial services firms did not know whether they were compliant or not.

Timico’s chief technology officer Kevin Linsell said: ‘It’s clear that many businesses are massively unprepared for MiFID II, despite having had the last 12 months to prepare for the impending legislation.’