The Spectre of MiFID II

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January 2017 seems like a long way away at the moment, we have two Christmases, another royal baby and the rugby world cup before then.  All very important events depending on your interests, however, how are you preparing for MiFID II and it implementation in January 2017?

It is designed to be the cornerstone of the EU’s regulation of financial markets

As a brief recap let’s consider MiFID I for a moment;

The Directive sets out conducts of business and organisational requirements for investment firms, authorisation requirements for regulated markets, regulatory reporting to avoid market abuse, trade transparency obligation for shares, and rules on the admission of financial instruments to trading.  These requirements have applied across the European Union since November 2007. It is designed to be the cornerstone of the EU’s regulation of financial markets and seeks to improve the competitiveness of EU financial markets by creating a single market for investment services and activities, and ensuring a high degree of harmonised protection for investors in financial instruments.  This approach is intended to help avoid confusion in the daily functioning of markets, and minimise opportunities for harmful regulatory arbitrage between Member States.

Whatever you think of the grand scheme as described you are living with the regime currently and if you haven’t already you need to be preparing for the changes being planned as part of MiFID II.   The areas of significant change will be;

  • Commodity Derivatives
  • Transparency
  • High Frequency Trading
  • Market Structure
  • Organisational requirements
  • Trade reporting
  • Conduct of business rules
  • Transaction reporting

Whilst on the face of it this list might not appear to be extensive we all know that the “devil is in the detail” and UK firms should already be reviewing the impact and planning the implementation of changes required.  Here are a few examples, randomly selected and as you look through these think about the impact on human resources, technology and senior management oversight in each case.

Complaints handling

  • Extend existing retail complaints-handling regime to professional clients
  • Change operational procedures to include professional clients
  • Appoint complaints oversight officer

Inducements (generally)

  • End to commission sharing arrangements and ‘free’ research
  • Existing ‘permitted benefits’ table in COBS 2.3 to mirror EU’s minor non-monetary benefits table so firms will need to reassess whether it can still receive permitted benefits
  • Prove that inducement enhances quality of service

Reporting to clients

  • Professional clients to receive what retail clients receive
  • Negotiate with ECPs what reports they receive and record any opting-out
  • Possible requirement to update terms of business
  • When reporting online ensure website is a ‘durable medium’

Recording communications

  • Update policies
  • Ensure potential transactions are recorded
  • Update storage requirements so records can be kept for 7 years (not 6 months)
  • Establish whether or not records are being kept in a ‘durable medium’ that allows for immediate recall

Of course there is lots more and every firm will need to assess the impact depending on activities, but this only serves to prove there is a considerable amount of work to do.  My advice is, don’t get side tracked by other events, get planning now.

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About Author

Julia Kirkland

Through our award winning training and consultancy partnership FSTP LLP we hope to become a trusted provider of services to client firms across Financial Services. Specialties: Training and consultancy, project and interim management from regulatory issues through to management development and board services. Chartered Member of the Chartered Institute of Securities & Investment

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