MiFID II – Markets in Financial Instruments Directive II – and its accompanying regulation, Markets in Financial Instruments Regulation (MiFIR) are looming ever closer to their full implementation date of 3rd January 2018, just about 5 weeks away.
The main changes are related to increased transparency, both pre and post-trade, with firms being required to report off-venue Actionable Indications of Interest and executed prices, through an Approved Publication Arrangement. Trading venues will be responsible for reporting prices and trades made on-venue and buy-side firms will need to ensure they can provide access to extensive information on the financial instruments they trade. Firms will need to ensure that they put processes in place whereby they can provide the right type of clear, fair information to eligible counterparties.
In terms of reporting and record keeping, MiFID II places quite burdensome requirements on firms to record and store all telephone and electronic communications relating to a client orders, even if that order doesn’t ultimately transact. It also says that investment firms must have the mechanisms in place to enable them to report any relevant transactions to the regulator or ARM by close of play the next working day.
Firms must prepare to manage significant increases in data volumes, as reporting will be expanded to cover all asset classes, and transaction reports will be extended to include many new fields.
In addition, firms must also consider how they will combine and maintain diverse data sets, including transaction, legal, HR and reference data, throughout the transaction lifecycle. Managing data sets that are growing in size, diversity and complexity could call for a complete technology overhaul and we are seeing a lot of uncertainty around both the communication recording element, and the transaction reporting requirements; both of which require comprehensive systems and processes which will automate these processes, while fulfilling the requirements. There are many systems out there which claim to be MiFID compliant but make sure the solution you select covers not just voice calls, but also text messages and instant messages. Add to this the imminent GDPR which states that personal data (and communication data would almost certainly form part of this) must only be stored for the length of time that it is absolutely necessary, and that you must store this in a way that is secure and portable, and things start to get very complex.
Compliance expertise is hard to find, and it is definitely an area where outsourcing could be a valid option. Buy in the expertise you need on a short-term basis, to ensure that you are compliant, and then pay to review this periodically, or when there are changes to the way the business operates, or new systems are put in place.
By bringing in these specialist skills from outside, firms can cover the whole process from analysis, through planning and strategy, to risk management and project oversight and implementation. With regards to MiFID II, time is running out, so whatever you decide to do, make sure you do it soon.