The Government has responded to the House of Lords report on the review of MiFID. It agrees that it is important to take the time to get regulatory changes right, and to achieve as much clarity in the Level 1 text as possible. It raises as its main concerns:

  • that the consequences of the proposals for OTF and the treatment of OTC derivatives have not been fully thought out. In particular, it foresees problems arising from the ban on use of proprietary capital;
  • that a one-size-fits-all approach to pre-trade transparency is not appropriate;
  • the need for clarification of the systematic internaliser regime, which has not worked under the original MiFID. It believes requirements on systematic internalisation and non-equity transparency should apply only in respect of instruments for which there is a liquid market;
  • that some elements of the Commission’s proposals on high-frequency trading are too broad and may prove counterproductive;
  • the third country provisions, which it says are deeply flawed and risk locking non-EU participants out of EU markets, which would be very bad for the City of London;
  • that the changes to the regulatory treatment of commodity market participants may create more problems than they solve;
  • that the Commission has taken an overly prescriptive approach to product and adviser regulation and to governance issues. The Government commends an approach more akin to the UK Retail Development Review. It particularly notes that the proposal to restrict the ban on inducements to independent advisers is not workable; and
  • that day-to-day supervision should be a matter for national regulators, with European Securities and Markets Authority (ESMA) having the power to intervene only in extreme circumstances.

(Source: Government Response to House of Lords MiFID 2 report and European Scrutiny Committee. 18th Report of Session 2012-13)