♪ nejra: the final countdown with less than 100 days to go in ii rulesl the mifid kick in. how will it reshape the relationship between asset managers and asset owners? plus, we speak of facility to andrew bailey the head of the conduct , authority about brexit and the future for asset management.

ant financial tech as well. welcome to bloomberg markets, rules and returns. i am nejra cehic and london. ii tois-hit --mifid dodd-frank we speak to the , manager's reacting to a new generation of rules. let's dive into the regulatory framework here in the united kingdom, i spoke to andrew bailey and asked him about the hot topic on everyone's mind , mifid ii. all, there's a lot of work involved in into it. to be out and about, making sure everyone understands what is needed. everybody knows what they need to do, and of course putting out the timelines. i have to say, we are not

finding cases as you might expect of a liberated refusal to help, so i am really happy with it. say no liability, what that means is that the rules coming into the effect can generate. our supervision will take over will -- if you like. we work with firms to make sure that things are good. i expect to be taken that forward as time revolves. no doubt we will find a very something better than others, and we will have to address that things are going less well. firms will tell us about that. >> you have already asked about people work to be submitted by july 3, and he said that many firms have met the deadline. how concerned are you about the ones that haven't? moment, thee

overall view is we haven't had a good response following the publicity we gave in july which was delivered. we are chasing down a few sets an industry, actually often more it is those who does those to whom this is all new. not one of the older firms, so -- you have tou dive in their little bit more to explain things to them. for some of them is rather a new world for them. nera: for any firms that have not made any general attempt to be ready, how do help with that. out,ere's a message going if you have not made any

progress, do not turn up at our door and ask us to solve the problem in a morning. we obviously do not want any dislocations in january or in any of the other days thereafter to read the we have been very much focused on doing what we need to make sure the market is functioning effectively. >> in terms of the for bush on you expect, will you be ready by january 3? there are so many different factors and perspectives, but there is a high proportion. anchor bank there have been ripped ports -- anchor: there have been reports that 40% of the managers met and it was an attempt to get clarity on the rules. the report also said that there was no solution to the meetings. why not? guest: this meeting, which the industry convened and we had some colleagues there, is about one issue.

it is about research. the reason that is an issue is because there is a very different approach towards paying for research in europe, and in the u.s.. rightly pointed out that there is a difference of regime, and they can of course get stuck in the middle of that, so they pointed out to the european authorities and the u.s. authorities. and of course it has to be the european commissioner who is involved in this and we have to find solutions to this. view is that this is an issue that we have to stop before the end of this year and we need to solve it in a pragmatic fashion. forms leftnt to see in the sort of dilemma not knowing what to do, it is to be a constructive approach. we are having constructive conversations. i think there are various things

that might be done, silicom it that it is a settled yet, while it isn't, but the discussions are happening. are -- say that there you say that there are discussions about that -- discussions about possible solutions. which ones might be favorable to you? guest: the discussions about the way firms organize themselves. the question about where the research is provided from, that is one set of discussions. there will be discussions between authorities about, how can we best reconcile these positions? and keep the necessary ingredients for a full to the rules put in place? i don't want to predict exactly what the outcomes will be but i would say, and i think is encouraging here, is that there is positive engagement. everything i see, the fca can't solve this problem on its own, but i see an engagement which is in the air it off we know we , have to solve this issue.

nejra: that was andrew bailey, head of the uk's financial conduct authority. more from our exclusive wide-ranging interview next. this is bloomberg. ♪

nejra: welcome to "bloomberg markets: rules & returns." i am literature thus i am literature. -- scandinavian regulators are warning finance professionals that they are unlikely to get the clarity they crave on mifid ii before it takes effect in three months. by design, mifid ii gives local regulators some freedom about to tell us that managers about how to comply. swedish and danish officials say it is hard to provide guidance in inducements. taxpayers won't be on the hook

should nordair bank, they say it is strong enough to withstand shock. finish taxpayers. indication say that the bank is strong enough to with dan even large economic shock. the bank moved to finland pending shareholder approval. former conservator government minister from test told bloomberg said that the new research rules under mifid ii could end up being positive. i've i think it is a good thing. i would guess that the small firms there really do value research is a way of identifying the differential between them and the others will be happy to do it themselves. >> that is your regulation news roundup. back to you, nejra cehic. nejra: back to our interview with andrew bailey.

how to the regulatory implications of exit complicate the implementation of mis-hit in the united kingdom --mifid ii in the united kingdom. andrew bailey: we made it clear from the day of the referendum that in the united kingdom, as long as the root mean a member of the european union, the you and has to keep on implementing european law. what comes hot on the heels of that, is that in the context of moral legislation in the united kingdom, you have been working with the government on how to work with the legislation in our domain and work on that house how to bring that back to the united kingdom.

that is our job and is underway but obviously that include having to deal with two other sorts of things. you are already having to work out how to transfer the legislation, which is challenging in terms of timetables and loads but we had to do that, obviously. because the commitment of the united kingdom is that on day one, we will essentially have the framework of legislation and rules operating as we had before day one. that is the point from which the united kingdom goes toward. mean: doesn't in any way that you have to adopt a little bit more -- and that alumina more so that the u.k. firms might get more time for leeway? andrew bailey: as a member of the eu, and the same way as the other members and then we are working out what it means to be transporting into the u.k. realm. just to give you a play of what that means, it is a like for

like in that sense. work, as we do this have to do it, how do we transfer ordered? what we have got more best what we have come up with is that called the inoperable korea the thing is framed and a european union institutional setting and you have to move it into a national u.k. setting. so obviously the institutional structures are somewhat different. the governing principle doing it is, we are not amending it, altering it, changing it. saying, we have always wanted to do something there, that is not happening to react nejra: does it add another layer of complexity for u.k. firms? >> the spirit of it is to make it as like for like for firms as possible. we're not aiming to say to the firms, you have to go through mifid ii implementation again. actually, that is not our objective to react nejra: when it comes to passporting for banks, another issue around brexit, you have said another

big issue in your brexit planning is how to go about these authorizations, eu firms operating in the u.k.. do you have a framework in place to mind will it be more lenient than the eu's framework once the u.k. needs? andrew bailey: i think the framework that we want and will have the in my view, is first of all governed by the philosophy that we want to have open market. i'm a strong believer in free trade and open market. the passport function is a subject of european union law. but my view is that they need to be directly equivalent to what that means in terms of inward authorization, is where obviously firms want to continue to operate in the u.k. as they have in the past, using the past or system. we will need to devise a system for organizations to allow them to do that. the big question that we need to

is does that mean that we have to find a way to do it all by day one? start to finish? or as we've had experienced domestically, we could use a system of so-called interim commissions, or in sonora authorization -- internal authorization. where we essentially continue the system of operations as before and then we will bring , properly and firmly into the regime over a hero of time. time.r a peroid of that is worth looking at in my view. for two reasons. the time available, practical matter. the second, we have to have half an eye on what the future regime looks like in terms of the relationship between the eu and the u.k. and also of course, what any of the meditations -- what any implementation timeframe would

. nejra: as a regulator, how can you get this framework in place when you have pointed to the fact that you need to know the nature of the future relationship between the eu and the u.k. and that is still unclear at this stage? andrew: that is one reason why they could make sense to look at an interim regime. because then we would , in airplane terms, we would be in a holding pattern to react we need to know more about where it is going to land eventually and not know what you. but i think it is best we do not know it yet. we are not saying, we will hit a wall at that point and what do we do? from my point of view because we have a lot of firms that would want to continue authorization, we want them to continue, we need that option up our sleeve. nejra: when it comes to syntec, people are concerned post-brexit.

best the financial tech industry. will the regulatory environment as the open to fintech rest of the eu? will it need to be to attract those startups? >> it depends on two moving parts. we in the u.k. come have been very oh to startups. best very open to fintech. interestingly, i saw this as a board member before i became chief executive, there has been a really important mindset change, but when you can and cannot do. to be some truth to it, but we do not have a royal as regulator to enable change. best we do have a rule as regulators to enable change, and we are enabling it. we're having to answer the question because our local book -- our rulebook was designed in a different age, sometimes against the way in ways that we should look at.

has taken a big lead and i am very proud of what they have done globally to react best globally. we have strong alliances now with other parts of the world, singapore, hong kong are two examples of countries that followed strongly. i really hope that we will have this in relationship with the eu. i do not see it as a race to see who has got more fintech, one thing about fintech is it is pretty borderless. that rules for another time, you made reference to that. when you look at things like cryptocurrency, contract, the difference, do you see any need to regulate around initial point offering and contract? andrew bailey: it may seem that we put out a warning on initial point offering and that was a can were warning. i think contrasts for differences in cryptocurrencies

is something that we need to dust i think it is something that i look at and say, how does that work? that is the first question we always need to. that was andrew bailey, head of the financial conduct authority. up next, reshaping the research relationship. we talk about the buy side. thought, am neil consultant who talks about the complex issue of valuing research. this is bloomberg. ♪

♪ >> it will be challenging. and it will be rocking meaning that are contrasting forces. the first force is, if i need to unbundle and pay separately, i will start saying, i i don't want to pay for this or i will pay less for this. >> of course, that is what every client should do. >> exactly. but something going in the exact opposite direction is, the four,

because of strong relationships and bundling, i was buying a service from operator a, which is actually not, when you look at the five, top quality. now i can justify buying that service from competitor a. our view is, i then need to justify that i am paying something for that service, so competitor b and c which are better than competitor a should gain value and share in those -- gain volume and share in those segments. how will that land? lots of dislocation and movement lots of reaction as everyone are just too it. that is just one scenario. it may well be that we find another way to make it work. the problem is, as i stand here in september i think everyone has run scenarios. i don't think anybody in an investment bank, we'll tell you, i have it all figured out and on january 1 i know how i will -- i know exactly how i will approach it and all of my

providers know it and we are aligned. there will be some adjustments throughout the beginning of next year. nejra: that was the ubs investment bank president andrea speaking to bloomberg about mifid ii. let's keep the conversation on mifid ii and specifically the buy side. earlier, we talked about how the new rules will reshape the relationship between asset managers and clients. >> this is a critical juncture in the industry because the requirement to present research projects to asset owners will involve owners directly in the research process for the first time. asset owners are going to have to ask more detailed questions about how research lending, now that it is on the p&l, will change from historic norms which govern product returns that decisions are being made on. it will reshape this entire relationship between the two. nejra: is the assumption that absorbing research costs will eliminate regulatory and client scrutiny and if that is the assumption, is a correct?

gust: obviously, it is an evolving thing. a number of managers saying, they will pay out of p&l for european clients but not u.s. clients. it remains to be seen how asset managers -- how asset owners from the u.s. feel about that. if we have managers moving to p&l, we want an idea of how much the research has changed. if it is reduced it may have an impact on future performance. so asset owners are starting to benchmark asset manager research spending the with him way that they -- the same way they measure trade costs. there are going to have some way to judge what is a reasonable research budget. nejra: you talked about european versus u.s. how should asset managers position themselves under mifid ii to gain a competitive advantage? if there is a way to do that? guest: i think the key thing is aligning the research budget with the investment strategy sold to the asset owners. i think the fca would agree if

, they have agreed on a budget, and they can show that spending directly supports that, the sides,for both of the then the regulators have done their job, making sure that spending supports that return profile that the asset owners wanted exposure to. nejra: we have had various numbers come out from the sell side of how much research might cost. one of the big questions is how much as it managers are actually willing to bend to react how much do you think it reasonable? guest: this is a very complex topic. the same service can be worth different things to different people. the valley of facebook is of limited value to his stock stock is soause expensive. the regulators accepted that the same thing is not worth the same for different people. different strategy require different amounts of research.

the key thing for a of is the right price of research? the amount that an asset manager has to pay to get the external research that allergies need to deliver targeted returns to investors, that is the contract may have with the client have to make sure the research is appropriate. what owners and managers will recognizes, not all subjects require the same research. comments research searched i ? -- higher returns and more exotic strategies, are going to be more research intensive will guide the valleys specific to each firm depending on the strategies on which they run. nejra: are we going to see any between longgence, only and hedge funds? how will that play out? guest: i think that remains to be seen. most hedge funds are planning to use client money for research, as reviewers will be aware.

many owners have said they will opt for p&l. which means that those managers using client funds will be probably subject to increasing regulatory scrutiny, which means they will have to have a mifid ii research valuation policy which clearly spells out how they are valuing research and how they are dividing cost to client. nejra: some people have been commenting on the fact that not just with mifid ii but with other regulation as well, there is pressure on active managers and we could see more consolidation. do you think that is what we will see? >> it is possible but the other thing that will help active managers is they have new tools to share research more efficiently. if they can explain to the asset owners and the regulators how they are maximizing roi on research spending, this will be the difference between the winners and the losers coming out of this equation, in our view. nejra: that was neil, principal at frost consulting. that is it for this episode of bloomberg markets, rules and

returns. if you have any questions comments, or concerns, you can email the team. rulesreturns@bloomberg.net. we would love to hear from you. i'm nejra cehic. this is bloomberg. ♪

♪ >> from our studios in new york city, this is "charlie rose." charlie: we begin this evening with a continued search for answers in las vegas. here is the cbs evening news. >> investigations are no closer to understanding what allowed this what inspired 64-year-old even cried out to create such carnage. his preparations were so elaborate including placing cameras of his room that investigators believe he may have had an accomplice. the sheriff of las vegas county. >> stephen paddock is a man who spent decades acquiring weapons and ammo and living a secret life, much of which will never