An Overview of MiFID II
“The greater the obstacle, the more glory in overcoming it.” Moliere
Does the thought of MiFID II seem overwhelming? The challenges can be managed if proper planning is done well in advance and by appropriately selecting a technology solution for your business enterprise.
What Is MiFID and Why Is It Being Changed?
The Markets in Financial Instruments Directive (MiFID) is a legislative framework laid down by European Union (EU) for investment intermediaries (NYSE/AMEX) to provide improved services for investment purposes. MiFID went into effect in the UK from November 1, 2007. (Financial Conduct Authority)
Steven Maijoor, European Securities and Markets Authority (ESMA) chairman describes the MiFID II initiative as the “biggest overhaul of financial markets regulation in the EU for a decade”. The objective of MiFID, as laid out by FCA is to organize trading of financial instruments to protect investors and also add an increased level of transparency to markets and transactions. MiFID is presently being extensively amended to enhance the functioning of financial markets.
The changes are expected to come into effect from 3 January 2017 and will be called MiFID II. However, there are indications that the revised MiFID may be delayed by a year i.e. until January 2018 as Steven Maijoor who heads ESMA has noted that the technical specifications will not be ready until “well into 2016”.
Who Will Be Affected?
Until now, investment banks with significant trading operations needed to deal with challenges posed by MiFID.
This trend will change, as the new implementation of MiFID II will impact additional financial areas e.g. investment firms such as banks and other providers of investment services, credit institutions, market infrastructure and create strategic and operational challenges for them.
Expectations of MiFID II (As per Financial Conduct Authority)
The modified MiFID is expected to contain the following:
- Introduce particular provisions to assure that high frequency trading does not adversely affect market quality or trustworthiness.
- Deliver extensive regulation of secondary trading to make it efficient and dependable.
- Present prerequisites vis-à-vis the administration of firms
- Clear organizational and conduct obligations associated with product governance arrangements
- Restriction on title transfers collateral agreements involving retail customers.
- Settle issues with the quality and accessibility of data in trade reporting.
- Provide improved levels of protection to firm’s clients.
Expectations of MiFID II (As per European Commission)
- Better transparency involved in trading. Under MiFID II, the multilateral systems (regulated markets, multilateral trading facilities (MTFs) and organized trading facilities (OTFs) are liable to the same pre- and post-trade transparency prerequisites.
- Improved financial stability and orderly functioning of the markets.
Implementing Standards (ITS) draft will be finalized with European Commission by 3 January 2016.
What Are the Challenges That Firms Will Face?
- Accuracy and Timeliness of Information
Firms need to provide accurate information to regulators within a time frame to prevent non-compliance. Inaccuracies in data reporting can lead firms in paying heavy fines. The potential for error will be greatly increased given a drastic increase in the number of reportable instruments and the level of detail required per transaction.
- High Volume Transaction Reporting
Investment firms carrying out transactions will be required to examine their transactions to comprehend whether they will be required to report a more extensive scale of transactions than they do as of now and report the more extensive scale of data required.
- Enhancements in Systems & Business Models
Operators of trading venues and Central Counterparty (responsible for clearing financial transactions centrally) will have to enhance their systems and business models in order to comply with MiFID II
Hexanika to the Rescue!
The time has come for Banks to start thinking differently.
Hexanika provides firms with an opportunity to implement an innovative regulatory reporting solution that is scalable, flexible, fast and cost efficient. This solution can provide a streamlined centralized repository that can be holistically employed across MiFID and additional regulations like EMIR, FCA Transaction Reporting will benefit firms, as it will ensure timely regulatory reporting compliance at competitive cost.
Associate Partner, Head of Banking, Synpulse
Mathias Hausherr heads the banking advisory practice of Synpulse Management Consulting USA. Synpulse USA is the inventive management consulting firm with a digital transformation focus in the banking industry. Synpulse’s operational excellence in banking stems from its extensive knowledge competence and time-tested project management methodologies. By embracing digital technologies, Synpulse has been able to create transformative business models that not only enable clients to fully leverage the benefits of the rapidly changing new technologies, but also to apply them more directly to industry specific challenges such as governance, risk and compliance.
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