MiFIR and MiFID Delay: Is the Delay Long Enough?
On February 10, 2016, the European Commission proposed to delay the entry into application of MiFID II and MiFIR until January 3, 2018.
The Commission’s justification was the scale of the challenge faced by the European Securities and Markets Authority (ESMA), national competent authorities (NCAs) and stakeholders in having essential data infrastructures in place for January 3, 2017.
Some EU politicians appear to hold the view that, despite the short time frame, financial services firms should ‘just get on with it’. Moreover, it is politically difficult for the Commission to be seen to bow to pressure from industry for a delay.
However, a delay is less objectionable if it is linked to ESMA and NCAs not being ready, as now seems to be the case.
Will January 2018 be Long Enough for Firms to Prepare Properly?
In late April 2016, it was announced that the FCA has selected a new supplier to replace its current Zen transaction reporting system. Like many other NCAs, the FCA has a dependency for instrument reference data on the ESMA project, and according to ESMA that system will “not be operational before the third quarter of 2017”1. The challenge of having FIRDS ready had been specifically cited by the European Commission as one of the reasons for delaying MiFID II.
Should we be Worried?
Some questions spring to mind:
- The FCA decided in April 2016 who will build its new MiFIR transaction reporting system - but when will that system be sufficiently developed to provide the technical specifications that firms and Approved Reporting Mechanisms (ARMs) need to develop for their own systems?
- Will the relatively late availability of ESMA’s FIRDS system affect the timetable for FCA readiness and related industry testing?
- Given the scale of the challenges faced by ESMA and the NCAs, as well as their fairly patchy track record in the provision of complex IT systems, how confident can industry be that January 2018 is a realistic deadline?
In the past, regulators have generally not been defined by the quality of their technology and their ability to manage data but MiFID II may begin to change this perception. The importance of firms gathering and collating the right data for monitoring and compliance, reporting to clients or provision to the regulator is a key theme running through MiFID II. Regulation comes at a very considerable cost for firms and in return, the industry can legitimately expect the regulators to make good use of those data.
Of course, there are many other changes in MiFID II that also represent significant challenges, for example for firms that operate as Systematic Internalisers or trading venues, particularly the new Organised Trading Facilities (OTFs). Transaction reporting is far from being the only MiFID II change which is complex and has a long lead time but it is the one that probably has the greatest effect on the largest number of firms.
1ESMA note of October 2, 2015