Details on final requirements and the implementation of Markets in Financial Instruments Directive II (MiFID II) will continue to be published over coming months, leading the UK Financial Conduct Authority (FCA) to conclude that serious efforts must be made towards achieving compliance on the 3 January 2018 deadline, although perfection is not expected.
Stephen Hanks, markets policy at the FCA, discussed progress on policy and the practicalities of implementing MiFID II at A-Team’s Intelligent Trading Summit in London last week. He noted the extent of the legislation – 1,500 pages, plus 50 pages of guidelines – and set out a timeline for updates on the regulation.
Considering European Union policy, Hanks said the European Commission is expected to adopt MiFID II final implementing measures later this month or in March, although it could be mid-year before all implementation pieces of the regulation are finished. Equivalency measures on share trading obligations are being written into final Regulatory Technical Standards (RTS) by the European Securities and Markets Authority (ESMA), while details on financial derivatives trading obligations may not be ready in time for the January 2018 deadline.
Looking at UK policy, Hanks noted that the FCA’s most recent industry consultation on MiFID II is nearly complete and will be followed by policy statements in March and June. From a practical perspective, the FCA opened the MiFID II authorisations gateway for authorised organisations and new applications from organisations such as organised trading facilities (OTFs), commodities dealers and data reporting service providers in late January. A gateway for passporting notifications will open towards the end of July. Hanks commented that if firms need to be authorised as prescribed by MiFID II, they should submit their applications as soon as possible.
The FCA’s concerns about the implementation of MiFID II include the regulation’s potential barrier to technology, as technology can bring about change and competition, but also the need to ensure technology control and resilience. As the FCA is not only a financial services register, but also a competition regulator, Hanks noted the authority’s need to understand the implications of disruptive technology and consider its impact on consumers. He also touched on the challenge of big data and the need for regulators to update systems to cope with huge volumes of data and gain more information from the data, such as a clear view of market stability.
Reverting to outstanding issues on the MiFID II timeline, Hank said a Q&A can be expected from ESMA on the scope of direct electronic access in March. More information on the equities double volume cap is due in the next few weeks, although the systematic internaliser regime may not start until January 2018. On non-equities, Hank said the FCA would detail transparency requirements in its policy statement in March, and expects ESMA to have more to say on OTFs as applications for authorisation are made.
Considering reporting, the FCA anticipates more information from ESMA as firms move to the MiFID II transaction reporting regime. Best execution reporting will start on a best endeavours basis when the regulation takes effect in January 2018.