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The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Don’t Put All Your Compliance Eggs in the MiFID II Basket

By: Roy Kirby, Senior Product Manager at SIX

When major regulatory deadlines loom large, there’s an inevitable tendency for the financial industry to scramble for minimum viable compliance. In layman’s terms, this means doing whatever it takes, regardless of the expense, just to keep the prying eye of the regulator away. Ring any recent bells?

The trouble is, while taking this approach may seem like a sensible option now, it’s unlikely to service future requirements and actually goes against the spirit of the regulations. This is why, as the post-January 3, 2018 dust starts to settle, financial institutions need to quickly adjust to ensure compliance with all regulations, not just Markets in Financial Instruments Directive II (MiFID II).

In order to adapt to achieve sustainable long-term compliance, firms cannot afford to keep adding to the vast array of information already housed across multiple systems every time a new rule is enforced. After all, regardless of the rule in question, they all require overlapping sets of data.

Instead, firms need to clean up the siloed information scattered across the business and consolidate their approach. And be under no illusions, as the local regulators begin to shift their focus from just demanding data consistency, to seeking both data consistency and quality, now is the time to reassess.

In response to this, expect firms to be piling the pressure on data vendors to provide one really strong source of information. The problem is, as highlighted by our end of year survey of over 100 sell- and buy-side participants, over a third of firms are still addressing regulations separately with their own data and systems. If this is still the case, how can the sector even begin to think about moving beyond just doing the bare minimum to be compliant?

It may well be that the sheer scale and complexity of MiFID II becomes the catalyst for change among these firms. Since the implementation deadline, there are certainly signs that institutions are adopting a more consolidated approach as they begin to re-evaluate what more can be done with their reference and market data.

It is not hard to see why. Embracing a standardised, more scalable data service that enables firms to extract the reference and pricing information needed for each regulation is an obvious next step. The crossover between MiFID II and the recently implemented Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation is a prime case in point. A lot of the data market participants are currently distributing for MiFID II is already reflected under PRIIPs.

As the industry navigates its way through these unchartered post-MiFID II waters, it is clear that those who took the tick box approach to January 3rd may well feel significant cost and operational ramifications further down the line. The challenge for these firms is that MiFID II is just one of the many requirements intertwined like a plate of regulatory spaghetti. While there may be somewhat of a post-implementation day lull in the air currently, this will not last for long. As and when the next piece of legislation lands, firms can’t just layer on top of each layer as eventually the entire stack of compliance cards will come tumbling down.

With this in mind, the natural next step is to look at the role of mutualised approaches to the challenge, through which key industry players can bring the required information together. This is exactly why firms grappling with this regulatory onslaught should be challenging their data partners to provide exactly what they need right across the business, in the form they need it. After all, the age of ready-to-consume data has very much arrived, so there should be nothing stopping financial institutions from using it.

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