Regulatory compliance, an educated guess
Widespread market reform following the financial crisis has left financial institutions scrabbling to comply with a myriad of regulations. An alarming feature of many of these regulations is the short time period between the finalisation of the rules and the implementation deadlines. Consequently, the path to compliance is often one of uncertainty, based largely on the educated guesses of those ‘in the know’. In this regard, the Markets in Financial Instruments Directive (MiFID II) is, unfortunately, no different.
In a recent poll by Bloomberg1 a striking 63% of participants viewed ‘a lack of clarity and guidance on the rules’ as the main obstacle to meeting the current 3rd January 2018 MiFID II deadline. Whilst this is over a year away, the final implementation guidelines are unlikely to arrive ahead of summer 2017, around six months before the expected implementation date. This is simply not enough time to implement the changes mandated by MiFID II. If impacted firms are to meet the deadline, they will need to start work now, creating plans based on assumptions and predictions about the rules. This may sound daunting but it’s nothing new.
In recent years both the European Market Infrastructure Regulation (EMIR) and the Market Abuse Regulation (MAR) were implemented under similar conditions. In both cases, regulators were conditionally tolerant of non-compliance at regulatory go-live, as long as firms were able to evidence their efforts, and demonstrate that they had plans in place, to achieve full compliance. It is very likely that a similar approach will be adopted in measuring compliance with MiFID II. In light of this, panellists at a recent Bloomberg conference offered the following advice:
‘Planning, preparation and building now means creating robust systematic processes, procedures and supporting technology based on educated assumptions… firms should document the reasoning and principles behind their decisions where there is ambiguity or guidance is pending. Waiting for clarity isn’t an option because you will simply not be far enough down the path to compliance if you don’t move forward now.’ (‘MiFID II: Make some assumptions and get on with it‘, Bloomberg Professional, 26 October 2016).
As 2016 draws to a close, it’s clear that the time for deliberation has passed. 2017 will need to be a year of action if banks are to stand any chance of meeting anticipated MiFID II deadlines.
- Poll of 200 participants at the MiFID II: The Market Practitioner’s View conference (Bloomberg London, 19 October 2016).
Further guidance on MiFID II preparations can be found in the BCS Consulting paper, ‘MiFID II – Keep on track for January 2018’.