Up until relatively recently, the regulatory landscape surrounding soft dollars – or “soft commissions” – had been generally settled in both the U.S. and Europe. The SEC last gave comprehensive guidance in this area in 2006, while the various European regulatory regimes likewise followed separate approaches with long histories, but in general concordance with the U.S. approach. The practice, both in Europe and the U.S., had generally been for hedge fund managers to obtain investment research and other brokerage services with client commissions. However, with the onset of the various Markets in Financial Instruments Directives (known as “MiFID I” and “MiFID II”) and other European initiatives in the past several years, particularly in the United Kingdom, the prognosis for trading and research activities across Europe is in upheaval. In a guest article, Gerald T. Lins, general counsel of Voya Investment Management, examines the U.S. and U.K. practices for using soft dollars/commissions. The article then explores the changes under MiFID I and MiFID II to the use of soft commissions in the E.U. and next steps in this area. For more on soft dollars, see “U.K. Financial Conduct Authority Issues Feedback Statement Supporting Proposed E.U. Limits on Soft Dollars
,” Hedge Fund Law Report, Vol. 8, No. 9 (Mar. 5, 2015).