After what has been a lengthy delay, MiFID II will finally come into force in January 2018. What is clear, however, is that despite the impending deadline, some buy-side firms have not yet prepared for the additional complexity the Regulation will bring to their data management and governance functions.
The primary effect of MiFID II for asset managers will be new requirement to pay for research from their own P&Ls, or set up so-called research payment arrangements. However, with the delegated acts come a range of ‘side effects’ that will impact on data management and governance.
As such, MiFID II represents a further challenge for the buy-side, which is already having to adjust to the implementation of MAR and the impending EU Benchmarks Regulation. Under MiFID II, firms will be expected to collect and aggregate pre- and post-trade data, increase transparency around record trade executions and enrich the data they collect for post-trade compliance reporting.
In January and February, ESMA issued three Q&As to help shed further light on the reporting requirements MiFID II will impose on firms: one on MiFID II implementation, one on transparency and one on transaction reporting requirements. These Q&As further clarify the scale of the governance and reporting transformation required by firms.
Worryingly, despite the size of the challenge facing them, the latest research suggests that buy-side firms have yet to start making the changes the Regulation will require. A poll taken in December 2016, for example, revealed that around half of attendees have not yet started to prepare.
This reticence by some firms to address the challenge head-on may well come down to cost. Asset managers will have to embrace radically new infrastructures to deal with the reporting requirements of MiFID II. If not handled correctly, these new investments will prove expensive. In fact, new estimates put the cost of MiFID II compliance more than $2bn this year alone.
Over the nine months or so that remain until MiFID II is transposed into law, buy-side firms must ensure they have in place a data management platform that can handle the increased scale of reporting the Regulation will demand. If they do not act with sufficient haste, many may struggle to achieve compliance in time. For us here at RIMES, the scale and urgency of the MiFID II compliance challenge makes the business case for managed data and compliance services like ours compelling. Managed services will ensure firms meet the MiFID II deadline and do so cost effectively.