MiFID II in 2016 (and 2017 and 2018…)
When news broke of a likely MiFID II delay back in November, I thought we’d quickly reach clarity on the revised timeframe that the industry needs to work to. However, festivities have come and gone, 2016 is well out of the blocks and we are still making assumptions. Alarmingly there are now concerns that a one year delay may not be enough if it takes too long for the technical standards to be signed-off by the European Commission, further extending the 2nd January 2018 date that has been suggested.
The initial (likely) delay is driven by the European Securities and Markets Authority (ESMA) and the National Competent Authorities, who see the timeframe to complete delivery of solutions to meet the MiFID II obligations, particularly across the most complex systems, as way too short. The main challenges cited are instrument reference data, transaction reporting, transparency parameters and publication, position reporting and the need for a harmonised start date for each of these areas.
So how should industry participants react to the changing timelines and ongoing uncertainty?
Firstly, there is no let-up in things to do. On 23rd December ESMA published a further consultation paper covering guidelines on transaction reporting, reference data, order record keeping and clock synchronisation. Running to 270 pages, this is now being reviewed across the industry as part of the consultation process but also to inform firms’ development of core business requirements as it elaborates with far more detail on what has been published previously. And there are further standards related publications to come.
There is inevitably re-planning to take place, however, the overriding message has to be to keep up the momentum that was established last year. Many contacts that we spoke to before the news of a likely delay talked of a “fat-tail” of MiFID II activity post the regulatory live date, perhaps mirroring what we’ve seen for EMIR. The industry now has an opportunity to ensure that this doesn’t occur again and that the additional time is used to maximum effect. For example, if firms continue to proceed at pace:
- There should be more opportunity to test reporting earlier and more thoroughly. The fact that the industry requires reference data for 15 million instruments shouldn’t prevent firms from proving their solutions for a subset in advance.
- The delay may provide time to explore alternative options for delivery, including outsourcing of reporting, rather than developing in house.
- They may see early feedback from best execution reporting that can in turn inform best execution policy.
- Critical paths that would have been affected by capacity and resource constraints for large system changes will be unblocked.
- There may also be more opportunity to strategically review processes end to end, with a broader scope than just the new regulations. With additional time the architecture required to support MiFID II could be better aligned with other regulatory requirements.
The other key factor to bear in mind, delay or not, is that the industry must continue to work together to overcome shared challenges at a common pace.
Although the impacts are very different for different types of firm, be they broker/dealers, asset managers, asset servicing companies, trading venues or technology providers, there are many inter-dependencies that need to be considered:
- Buy-side firms that haven’t previously undertaken transaction reporting have a new challenge that they may be looking to their sell-side suppliers and third parties for support with.
- Asset servicing firms may have to respond to the demands of providing new data to support the MiFID II programmes of all of their clients, becoming involved in a large number of simultaneous external MiFID II programmes.
- Technology suppliers may have to introduce new attributes at a trade capture level, having to provide new technology for a vast number of clients.
- Testing across the industry must be aligned
The industry as a whole will benefit dramatically if challenges are shared openly and solved for in an aligned and consistent manner.
With so much still to be done, let’s hope the timeframe is confirmed soon and the industry both keeps up the momentum and works collaboratively to ensure success. One certainty is MiFID II is going to keep a lot of us busy for quite some time yet.
BCS Consulting has deep understanding of the MiFID II regulations and has recent experience of programme mobilisation, impact assessment and business requirements analysis. We have a strong track record of delivering regulatory change programmes, with particular strength in transaction and trade reporting, client data management and associated control frameworks. Please get in touch for more information.