The big news of the last few weeks is the not unexpected delay of the implementation of MiFID II. Other noteworthy developments include Level 2 measures for UCITS V and the EU Benchmark Regulation and the increasing interaction between the EU and US markets through the cross-recognition of central clearing counterparties (CCPs).

MiFID II: Level 2 delayed by (at least) a year

The EU Commission has announced that the new deadline for the application of MiFID II is 3 January 2018. The main reason for this has been the need for sufficient time to implement the IT changes required to bring MiFID II into force. The Chairman of the European Securities and Markets Authority (ESMA) had suggested that a one year delay may not be adequate if the Level 2 text is not quickly endorsed, particularly since it is not possible to create the relevant IT infrastructure until Level 2 is agreed. The full report can be read here: Commission extends by one year the application date for the MiFID II package

It is noteworthy that, despite the delay, the Financial Conduct Authority (FCA) is already starting the process of implementing MiFID II into UK law (for example, see Consultation Paper 15/43). Although the delay in MiFID II is helpful for asset managers in terms of having extra time to prepare for its application, the uncertainty caused by an unclear timeline for MiFID II means it is harder for asset managers to plan and budget. These problems could be compounded if the FCA moves too quickly to implement MiFID II, and in doing so does not implement it as required by the Level 2 text, thus creating a mismatch between UK requirements and the MiFID II European framework.

UCITS V: No objection to Level 2 from Council of the European Union

The Council of the European Union has issued a press release stating that it has decided not to object to the draft Level 2 text for UCITS V, adopted by the European Commission on 17 December 2015. If the European Parliament also does not object to the Level 2 Regulation, it will come into force 20 days after being published in the Official Journal. Following publication there will be a further six month period before Level 2 actually applies. Read the Council of the European Union's full press release here: Outcome of the Financial Meeting

This press release should provide further confidence that the Level 2 Regulation will be approved in a timely manner, easing concerns in the industry regarding how to effectively implement the UCITS V Directive by 18 March 2016 without the need for a confirmed supplementary regulation, and provides greater certainty regarding how UCITS V will be implemented. 

Benchmark regulation: Preparatory steps taken for Level 2

ESMA has published a discussion paper as part of a public consultation regarding its provision of technical advice in preparation for drafting Level 2, under a mandate from the European Commission. Read ESMA's discussion paper here: Discussion Paper on Benchmark Regulation as well as ESMA's mandate and the cover letter.

In the discussion paper, ESMA consults on a range of issues, which generally relate to: setting definitions, governance and oversight, validating the reliability of data, transparency, classification of benchmarks, authorisation process for a benchmark administrator, and the impact of the Benchmark Regulation on existing financial contracts and financial instruments.

Responses to the discussion paper must be submitted by 31 March 2016. ESMA will deliver its advice based on these responses by September/October 2016, four months after the Benchmark Regulation comes into force (May/June 2016). The delegated acts are expected to come into force in November/December 2017.

EMIR: Cross-recognition of US and EU CCPs

The European Commission and the CFTC have announced that a common approach will be taken regarding requirements for CCPs in the EU and the US. This has been declared possible because both the CFTC and the EU base their requirements for CCPs on international principles, leading to similar regimes. Read more about the European Commission and the CFTCs announcement here:The United States Commodity Futures Trading Commission and the European Commission: Common approach for transatlantic CCPs

This cross-recognition facilitates European CCPs in doing business in the US, as well as US CCPs in providing services to EU companies. The announcement means that the CFTC will propose a determination of comparability for the EU, permitting EU CCPs to provide services in the US whilst complying primarily with their own local requirements. The European Commission will also adopt an equivalence decision with respect to CFTC requirements for US CCPs. This will allow ESMA to recognise US CCPs, so that they may continue to provide services in the EU whilst complying with CFTC requirements. If recognised, a US CCP will become a qualifying CCP for the purpose of the EU Capital Requirements Regulation, lowering costs for EU banks and their subsidiaries.

The announcement is also expected to shortly lead to the European Commission proposing the adoption of a decision regarding US trading venues, stating that they are equivalent to regulated markets in the EU. This decision would provide a level playing field between EU and US trading venues.