Summary: The comprehensive revisions to the Markets in Financial Instruments Directive (MiFiD) in response to the financial crisis have had a troubled gestation.

Level 1 texts for MiFID II and its accompanying regulation MiFIR were finally released in 2014 after lengthy and painful trilogue negotiations. MiFID II and MiFIR were set to come fully into force in January 2017, however delays in the 50-plus pieces of Level 2 legislation have forced a postponement.

Implementation is now set for January 2018.  Regulators are expected to have their rules in place for MiFID II by July 2017, but the European Commission has yet to release much of the Level 2 material.

The infographic below demonstrates not just the initial impact of the changes of firms, but just how much effort will actually be required to get ready and compliant with the changes. 

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Clarity on Conduct of Business

Following on from its adoption on 7 April of a draft delegated directive covering client assets, inducements and product governance requirements, on 25 April, the European Commission released the eagerly awaited draft delegated regulation on organisational requirements and operating conditions for investment firms.  

This delegated regulation sets out tighter rules around firms’ organisation, outsourcing arrangements, and conflicts management along with more stringent conduct of business rules. The regulation also clarifies the operating obligations that will be imposed on trading venues and data reporting service providers and sets out the detail of the position reporting requirement in commodity derivatives. 

With what the European Commission states to be a “broad consensus” from stakeholders including ESMA and the European Parliament, we can at least hope this important piece of level 2 legislation will pass smoothly through the scrutiny stage. 

Where else do we still need detail?

The European Commission is late in delivering the Level 2 legislation to formalise the many regulatory technical standards and implementing technical standards upon which MiFID II’s framework measures depend. Once adopted, these Level 2 measures will clarify many technical aspects of MiFID II, including in relation to exemptions, admission of financial instruments to trading, trading processes, passporting, position limits and position management. 

UK implementation

In the UK, HM Treasury and the FCA have already released initial consultations on MiFID II implementation measures. However, the substantive provisions that will have most impact on firms are still awaited.  Current indications from the FCA are that it will be releasing a further consultation in late July 2016 (to address changes to its systems and controls and client assets manuals, along with changes to enforcement and its internal processes).  There will then be a third consultation dealing with changes to the conduct of business rules, however this is not expected to be issued until late September 2016.  Since the delegated regulations will take direct effect, firms will not need to wait for the FCA to produce its draft rules to commence considering the likely impact on their business.

Brace for impact 

The impact of MiFID II and MiFIR will be immense, given its broad reach. The provisions of the legislation make significant changes to market infrastructures, to transparency requirements both pre-and post-trade, and to trade reporting. These measures, coupled with the proposed enhancements to corporate governance and investor protection, will bring some firms and instruments within the regime for the very first time. Other firms will need to make IT, organisational and systems upgrades, and staff will require training on new and changed obligations. 

Helping you avoid implementation havoc 

Even though the go-live date seems a long way off, firms should be considering the strategic impact of MiFID II.