Today on the blog, RFA UK Managing Director George Ralph provides a much needed update on the MiFID II regulation.
MiFID II: Where are we now?
It’s been over six months since I first wrote about the new piece of proposed EU legislation, MiFID II – Markets in Financial Instruments Directive II – and its accompanying regulation, Markets in Financial Instruments Regulation, MiFIR. These EU-wide rules effectively entered into force in June 2014, and were both scheduled to apply in full from January 2017 – the EU trading community’s deadline for compliance.
The landscape has evolved since then, with significant developments recently. Just over a week ago ESMA published a note which categorically supported a delay in the implementation of MiFID II, primarily because of four areas for concern; Reference data, Transaction reporting, Transparency parameters and publication and Position reporting.
In addition, yesterday the European Commission concurred that it believes that the industry and the European Securities and Markets Authority would not be in a position to complete the process by 3rd January 2017, due to the size and complexity of the data collection challenge. Whilst a postponement has not been confirmed, it is thought that members of parliament overseeing the legislation have agreed not to oppose any requests for the date to be pushed back. Timescales mooted are a full 12 months later than originally planned.
It could be that the technical standards published a couple of months ago, and running to over 550 pages, has highlighted the immense amount of work that most firms face and it has become apparent that the industry needs another year at least, to get its IT systems ready.
It is not, as some may hope, a disbandment of the whole directive, and industry must be cognizant of the fact that they should keep working towards this at pace, if they are to meet even the 2018 deadline. I’m sure the delay will be a welcome reprise for many. Recent research by Deloitte, amongst 13 investment managers representing £475bn of assets under management, found all but one believed that MiFID II would have the greatest impact of all European regulations in the next two years.
Amongst the key challenges perceived by the 13 was the separation of research fees from the dealing commission, to enable greater transparency, which many believed would lead to shrinking research budgets and greater scrutiny over the quality of research. The need to complete appropriateness tests for a wider range of vehicles was also of concern, with some firms simplifying their products already. However, the greatest worry for most firms is surely the scale and scope of the changes needed to back office IT systems to accommodate the increased reporting and recording requirements. I’m sure it is this that will take up most of the extra year’s grace period.
From me, the message is still loud and clear – do something and do it now!