17 Jan A year before the Change: MIFID II and other upcoming regulations
2017 should be a challenging year. All the new regulatory regimes are competing for the attention of all relevant people including the local regulators. Many of the regulations that we have all been focused on in the past few years will soon kick in and we will soon see the impact they will have. The 2017 and 2018 horizon is filled with key compliance challenges such as the Payment Services Directive 2 (PSD2), Common Reporting Standard (CRS), EMIR, MiFID II, MiFIR, PRIIPs, SFTR, and GDPD. All these regulations are complex and will demand time and resources to achieve compliance within the set deadlines imposed by the various regulatory bodies.
From all the upcoming regulations, the most pressing one is no other than the Markets in Financial Instruments Directive II (MiFID II). We have about 12 months for the 3rd January 2018 go-live date set by the European Securities and Markets Authority (ESMA).
ESMA gave a one year delay for implementation but that did not help much as many companies used that time to deal with other regulations that were implemented in 2016. To achieve all the directives set out by MiFID II will be a tremendous challenge for companies. With so many different regimes in flight this is not surprising.
MiFID II was a direct response to the global financial crisis as well as creating a regulation fit for purpose to counter the evolution of algorithmic and high frequency trading in recent years. MiFID II now seeks to encompass previously unregulated instruments, extend its reach to hitherto unregulated companies, reinforce the role of the local supervisory powers and ESMA, and safeguard investors by creating stricter requirements for portfolio management and investment advice.
The high level goals of MiFID II are:
- Increased transparency of markets
- A shift in trading towards more structured marketplaces
- Lower cost market data
- Improved best execution
- Orderly trading behaviour within markets
- More explicit costs of trading and investing
MiFID II is far reaching in scope and presents an enormous challenge to the industry. There are many facets to the regulation such as pre-trade monitoring, position limits, dealing commission, trade reconstruction and research costs, but few are going to be more difficult to implement than post-trade reporting. The requirements to combine trade data, buyer and seller personal information and millisecond time synchronization alone is a technical nightmare for most financial services firms. Adding trade eligibility indicators, multiple reconciliations, data validations and a number of reporting variables to the mix significantly increases the delivery risks, never mind the difficulty in hitting the January 2018 target.
MiFID II will introduce new and more onerous obligations for relevant market participants in relation to:
- The manufacture of new financial products
- Product distribution
- Internal governance and management procedures
- Over-the-counter trading
- Reporting obligations.
ESMA and local regulators have been very clear that they will start auditing firms shortly after the go-live date. Unlike audits under the previous regime, these will focus not only on what has been reported but will challenge your control frameworks for weaknesses. For anyone thinking that they can simply manipulate a data dump from their front office system without performing any validations or end-to-end reconciliations they must understand that over-reporting is not an option.
How we can help
MiFID II will command significant changes in business and operating models, systems, data, people and processes and fundamental transformation will emerge. EIMF has created a series of training programmes that cover all aspects of MiFID II Implementation. If you have any specific requests we can help so just give us a call.
Furthermore, we have announced 5 titles on MiFID II set to take place on the first half of 2017, to give companies the time to learn and implement the changes necessary for their compliance.
1) The new European regulatory framework on Financial Instruments (MiFID II) and Market Abuse (MAD II) with Dr Christina Livada -16 February | Limassol
2) An Exploration of MiFID II and Transaction Reporting on MiFIR with Vivienne Bannigan – 13, 14 March | Nicosia
3) MiFID II – Buy Side (Asset/Fund Managers, Fiduciaries, Administrators, Legal) with Gary Pitts – 3 April | Nicosia
4) MiFID II – Sell Side (Investment Firms, Brokers, Market Makers, Exchanges, IT & Compliance, Forex, Binary Options) with Gary Pitts – 4 April | Limassol
5) MiFID II – an Overview with Stathis Kyriakides – 12 May | Limassol
6) Product Governance Requirements in MiFID II with Adam Samuel – 15 May | Limassol