How does MiFID II delay impact your firm?
The fundamental building block for compliant reporting is actually underastanding the reporting requirements. Only then can an efficient gap analysis be conducted.
David Nowell, Head of Industry Relations and Regulatory Compliance at UnaVista speaks to ISS magazine on the postponement of MiFID II until January 2018 and the implications on firms and their service providers.
Why has the implementation of MiFID II been postponed by a year?
MiFID II has been postponed by a year due to the exceptional technical implementation challenges faced by the regulators and market participants. The complexity of this exceptional technical implementation arises from the fact that ESMA has to collect data from about 300 trading venues on an estimated15 million financial instruments. ESMA informed the European Commission during Q3 2015 that neither competent authorities nor market participants would have had the necessary systems ready by 3 January 2017, the date by which the MiFID II package was supposed to be readily deliverable. The one year extension was formally approved by the European Commission during Q1 2016.
What are the implications of the postponement for institutional investors?
I believe this is positive for many firms as they have more time to run internal business assessments and long term risk analysis with the view to strategically invest in the best software capabilities, in order to meet the MiFIR reporting obligations. It also allows firms to make better informed decisions on the selection of their service providers, and to consider their internal tactical and strategic decision making process for the longer term. However, regulators may expect full compliance following the extra year to prepare.
What are the implications for their service providers?
The service providers have time to rethink their cutting edge products; they benefit from an extended timeline with the aim at redesigning better tailored solutions for the market participants’ needs.
How will the recast regulation impact on Systematic Internalisers (SIs) and Approved Publication Arrangements (APAs)?
MiFID II extends the systematic internaliser regime from applying solely to shares to a much broader range of asset classes: equity-like instruments (depositary receipts, ETFs, certificates and other similar financial instruments), and non-equity instruments (derivatives, bonds, structured finance products and emission allowances). When MiFID II/MiFIR enters into effect on January 3, 2018 investment firms entering into OTC transactions must comply with new transparency requirements. Amongst these requirements, investment firms will have to make certain post trade information public through an APA. So, the recast regulation impact on SIs and APAs could be translated into a higher degree of transparency in the area of non-trading venues..
How will technology firms cope with the surge in IT investment – do they have the capacity?
I think firms that have not planned strategically will inevitably struggle. At UnaVista, we constantly monitor the regulatory environment and we have already invested in infrastructure to ensure we have capacity for the ever expanding regulatory requirements.
How will firms cope with integration, connectivity and reporting under the new regime?
Implementation work and scheduling for firms’ integration, connectivity and reporting under the MiFID II regime has already started for those market players that wish to be ahead of the game. The fundamental building block for compliant reporting is actually understanding the reporting requirements. Only then can an efficient gap analysis be conducted. Firms need to be able to source the new data and understand the data protection issues that are associated with some of the data elements. Choosing a service provider that has an excellent track record of current MiFID reporting and thoroughly understands the complexities of the new transaction reporting is absolutely essential.
Is postponement a good thing in your view? If so, why? If not, why not?
Implementation was postponed for good reasons – regulators and reporting firms alike faced insurmountable challenges, so it has to be regarded as a good thing. What is paramount now is to take full advantage of the delay and ensure you are fully prepared for January 2018. Many firms are already testing their readiness and UnaVista has already gone out to the market with a well-prepared cutting edge product, the MiFIR Accelerator, to help firms check their readiness.
Are the protests that we are beginning to hear about over-regulation starting to build momentum?
Financial markets infrastructure regulation has changed dramatically in the past six years. In response to some of the practices seen in the run-up to the 2007 financial crisis, EU rules have necessarily become more prescriptive. Legal and regulatory certainty is one of the prerequisite for the well-functioning markets. The European Commission launched a consultation in July - “Call for Evidence” - on the impact of financial regulations on bank financing of the economy with the view to take the market pulse and better understand its perceptions on the current regulatory framework. The EU has put in place a range of rules designed to increase transparency and provide more information to the regulators, investors and the public in general. The information contained in these requirements is necessary to improve oversight and confidence and will ultimately improve the functioning of markets. In some areas, however, the same or similar information may be required to be reported more than once, or requirements may appear to overlap. However, I believe supervisory authorities in the EU are listening to listen to market’s concerns. I also believe there is scope for the industry to take advantage of some of the synergies between the reporting regimes.
Could we see further postponements? Or even the scrapping of some regulation? If so, which part would participants most like to put into Room 101, as it were?
This is notoriously difficult to predict. However, an agile reporting solution is essential for firms to be able to respond to any unexpected regulatory developments.