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Simon Lovegrove: Hello everybody and welcome to the latest Financial Services Fireside Friday. On 22 May this year the European Securities and Markets Authority, ESMA, published its long awaited consultation paper and discussion paper on MiFID II and MiFIR.

Simon Lovegrove: Connor, to start off with, why a consultation paper and a discussion paper?

Conor Foley: The consultation paper refers back to directions in the primary legislation where ESMA is requested on a mandate from the European Commission to provide technical advice. What you have in the consultation paper is ESMA’s preliminary thinking on the technical advice, the draft technical advice itself and questions to stakeholders for their views on that draft technical advice. The discussion paper, which is a far larger document, pertains to any parts of the primary legislation where ESMA is requested to prepare draft technical standards, typically draft regulatory technical standards. What you have in the discussion paper is a much wider debate, some analysis, some proposal and a long list of questions for stakeholders to comment on.

Simon Lovegrove: Absolutely, and what’s also happening to the existing MiFID implementing measures?

Conor Foley: They will remain in force until we have application of the MiFID II and MiFIR legislation. Now when that happens of course MiFID, the primary legalisation, that those implementing measures are based on is repealed and those implementing measures are no longer in force. Now, what is interesting is of course looking at this ESMA has not entirely gone back to the blackboard. It has taken a lot of what it had previously in say, for example, the MiFID implementing regulation and implementing directive and of course what it has in previous CESR and ESMA guidelines.

Simon Lovegrove: Firms have had to digest over 800 pages with the discussion paper and the consultation paper. There is too much to go into detail for a video but what are the highlights for you?

Hannah Meakin: Well, ESMA breaks down the subjects it considers into about seven different areas and between them they really span the scope of MiFID II and MiFIR. Just to pick out four of those. I would start off with investor protection because this forms one of the biggest chunks of the consultation paper. ESMA has put together a lot of detailed proposals. I think its fair to say that most of those will be familiar to firms in the UK in terms of their concept but of course trying to implement the detail of a different set of legislation will no doubt bring about some challenges. The second largest area in the papers is transparency and in this part ESMA has obviously done some very detailed thinking because they have a very difficult question to answer which what should be the definition of a liquid market for asset classes other than equities. This is a very important part of the transparency proposals but also some of the other requirements, in particular, the obligation to trade derivatives on platform.

Simon Lovegrove: And the all important question of commodities?

Hannah Meakin: There is some really interesting discussion in relation commodity derivatives in particular in the consultation paper on the definition of commodity derivatives within the scope of the financial instruments. And then in the discussion paper about the scope of the exemptions that will remain for firms that trade commodity derivatives and in particular the interaction of those exemptions. These two points together are really important because they will have a big impact on whether firms that are trading commodity derivatives need to be authorised going forward and indeed how some of the other obligations will apply to them.

Simon Lovegrove: Connor, firms do not have an awful lot of time to digest all the material. The deadline is 1 August. Before that on 7 and 8 July we have a public hearing in Paris. Can you tell us a bit more about timing after that?

Conor Foley: What we can expect is a procedure under which ESMA will be digesting a lot of what it is going to receive back on both papers. It has a relatively tight deadline with regards to the consultation paper. Those who have read through will note directions in the primary legislation for ESMA to provide its draft technical advice to the Commission within 6 months of [MiFID II and MiFIR] entering to force. We anticipate that’s going to be around the end of the year conditional on entry into force around the first week of July is what we anticipate now. Discussion paper is a longer process. More time and more questions of course to digest. ESMA has until after 12 months after entering to force to provide those draft implementing and regulatory technical standards to the Commission. What we would expect then is in and around the middle to the end of Q1 next year we will start to see some draft regulatory technical standards put out for subsequent comment from industry I suppose with a view of ESMA perhaps submitting those to the Commission towards the end of May of next year.

Simon Lovegrove: So we can expect to see a consultation paper after the discussion paper?

Conor Foley: We most certainly will for areas where ESMA directed to provide draft regulatory technical standards, that’s been the procedure to date.

Simon Lovegrove: What should firms be doing now?

Conor Foley: Reading to start, prioritising to follow, and I think that where firms are ready to respond on those issues that are most important to them and to the sectors that they are engaged in. If you are going to answer the questions particularly in the discussion paper I would suggest that you should be backing it up with not only examples of market practice but also particularly where ESMA asked those questions about what other alternative approaches it might take if you are going provide another alternative approach provide some supporting evidence and analysis behind that.

Conor Foley: In truth how many of those responses will be read and in how much detail is an open question but think of the scale. ESMA has a fixed time within which to do it that which is most valuable will in my opinion be most influential.

Simon Lovegrove: And its also worthwhile getting involved with your industry association as well?

Conor Foley: Yes, many of them have divided work within themselves or with other industry organisations. That’s certainly helpful. Its helpful in prioritising but for industries where the very important issues where you are exposed on particular provisions there is no real substitute for getting to grips with them yourselves.

Simon Lovegrove: Hannah we have already been doing a lot of work on the consultation paper and discussion paper?

Hannah Meakin: Absolutely, the team here has been working through both papers and reading them in light of the Level 1 legislation. We are helping various clients to work through the implications and in some cases put together their responses. We have also put together also a high level briefing on each of the 2 papers covering the different areas and we will be in due course be updating our fuller briefing notes to reflect the Level 2 proposals.

Simon Lovegrove: And these will be put on our online technical resource pages.

Simon Lovegrove: That concludes this Fireside Friday. Goodbye.