With the one year stay of MiFID II execution to 3 Jan., 2018 there are many in the industry who both welcome and warn about the delay across EU member states. Those who welcome the delay agree with the European Commission’s statement that “this is to take account of the exceptional technical implementation challenges faced by regulators and market participants.” But for those in the industry who disagree with the decision, they believe these firms should have been more diligent in their implementation efforts.
“With the MiFID II delay, the industry is conflicted.”
The rationale behind the delay
The European Commission has gone on record to state that it wants effective implementation of the new Markets in Financial Instruments Directive rules, which played a large role in setting what it deems as a realistic implementation timeline for both regulators and industry firms in EU member states. A spokesperson for the Financial Conduct Authority explained that the rationale behind the delay was also due in part to a review of the MiFID handbook and its guidance.
“Despite the delay, firms need to continue to press ahead with their implementation work,” the spokesperson explained. “There’s still a lot for them to do to be ready in time for the new implementation date. For our part, we will look to finalise the resulting changes to our Handbook as soon as practicable to provide firms with adequate time to complete their implementation work.”
Many argue that firms should have been ready
Critics have argued that with the 2018 implementation date, it has now taken almost 10 years to execute the MiFID regulatory framework. So while this delay was anticipated, it means that firms have had approximately a decade to prepare for the implementation. As firms have adjusted to various other regulatory exercises that are similar in their impact on data governance and transparency, many critics argue that these changes are good for the industry. Therefore, there was ample time to adjust to all necessary requirements.
The delay means further delays for transparency in some EU financial markets
The impact of the delays to MiFID II is that it will give firms more time to conduct all necessary changes to adjust to the new regulations, but it also means that other rules will be pushed back. In fact, the implementation of the Market Abuse Regulation rules, which were set for execution on 3 July, 2016 will now be delayed with MiFID II because MAR is reliant on MiFID II regulations for a portion of its definitions and interpretations. MAR will instead continue to rely on the previous definitions and interpretations listed under MiFID I.
This delay of MiFID II, and subsequently some MAR measures, will also mean that organised trading facilities will be placed on hold till 3 Jan., 2018 OTFs are new platforms used when multiple third-party investment firms interact in a way that requires a contract to buy and sell complex non-equity financial products. These rules governing OTFs are significant because investment firms will require permission from regulators to use them.
Critics have argued that these rules for more transparency of OTF data are important because of what happened throughout the financial crisis. The need to reduce systemic risks due to a lack of greater trading transparency in complex products will be further delayed with MiFID II as a result.
While regulators and firms agree that stricter reporting rules like MiFID II are good for the industry, it will push off these regulations for another year. The delay will also mean that the EU member states will only have the old rules listed under the Financial Conduct Authority, MiFID I and the European Market Infrastructure Regulation to regulate reporting and risk mitigation against market abuses and trades of complex financial products through OTFs.