European Commission announce political agreement on MiFID II
Following the ‘trilogue’ process between the EU Parliament, Council and Commission (where the respective bodies discuss and agree prospective Directives and Regulations) the EU Commission announced ‘agreement in principle between the respective bodies in regard to the Level 1 text of MiFID II’ as at 14 January 2014. Michel Barnier, the EU Commissioner, made the announcement but made specific comment to the slower implementation timeline than the EU Commission would have preferred. No doubt there will be time line pressure brought to bear in future.
This announcement did not bring with it a firm time line but the following is indicative;
- Further ‘technical’ trilogue will now continue which may well lead to final Level 1 text being agreed by mid-to-late February 2014.
- Formal adoption of the Level 1 Directive may then be published in the EU Official Journal in May 2014, possibly later.
- The current Level 1 Directive gives Member States two years to transpose these provisions into Law, where necessary. In addition, Level 2 Regulations will need to be agreed as MiFID II is another example where this will be implemented jointly by Member State domestic Implementing legislation and delegated EU directly binding Regulation (i.e. MiFIR). It is understood that MiFIR will apply 32 months after its publication on the EU’s Official Journal.
- Consequently, it is thought that the provisions of MiFID II, the Directive, and MiFIR, the Regulations, are highly unlikely to be effective in Member States any earlier than 2017.
To whom does MiFID II apply?
MiFID II applies to MiFID firms, i.e. those Financial Services businesses undertaking MiFID Business anywhere within the European Economic Area (‘the EEA’). This will, therefore, impact all MiFID Investment Firms and Credit Institutions authorised and regulated by the FCA and PRA here in the UK.
What are the key features of MiFID II?
MiFID II intends to build on the existing MiFID regime introduced with effect from 1 November 2007. This is a consequence of the usual EU Review of Directives and also to take account of the change in the financial markets since that date. The key areas which MiFID II (and its Regulations, MiFIR) will touch upon are:
- To ensure that all trading, where appropriate, is undertaken on Regulated ‘platforms’. For example, MiFID II introduces the concept of the Organised Trading Facility, a new form of Multilateral Trading Facility.
- Improve Market Transparency. This introduces transparency to non-Equity instruments such as Bonds and Derivatives. It also introduces greater pre-trade and post-trade transparency, for example in regard to ‘large orders’, ‘request for quote’ and ‘voice’ trading. There will also be the implementation of Approved Reporting Mechanisms (‘ARM’) and Authorised Publication Arrangements (‘APA’).
- To strengthen supervisory powers through, for example, Competent Authorities being able to set trading limits on firms as set out by ESMA.
- Controls over ‘algorithmic trading activities’.
- Stronger investor protections.
- Granting third country firms access to EU Markets on the basis of ‘equivalence’.
These are just a few examples. No doubt, as we move forward between now and implementation, probably in 2017, a good deal more will become clear and no doubt the subject of ‘interesting’ debate.