The European Securities and Markets Authority (ESMA) has published the final regulatory technical standards for the markets in financial instruments directive (Mifid II), but time is running out to implement the changes.
ESMA has released the details of how the regulation will work, following a consultation paper, and Steven Maijoor, chair of ESMA, says the “magnitude of this change should not be underestimated”.
“But the past has taught us that change is needed in order to make markets more transparent, efficient, and safer to invest in. This will entail a certain cost but we should not forget the other side of this equation, which is the great benefits safer and sounder markets will bring to everybody,” he says.
However, trade bodies say the final details on certain aspects of the regulation are not clear, while others will create barriers and increase costs. The delay in ESMA releasing these standards has also made it increasingly hard for asset managers and advisers to update their systems in time, experts warn.
Ian Cornwall, director of regulation at the Wealth Management Association, says the body’s main focus will continue to be on client ID and transaction reports, but it is still “very unclear” on other areas, such as cost disclosure and the top five trading venues by types of financial instruments, which ESMA is not publishing rules on until November.
“We had already looked at the first draft and we will analyse the final technical standards over the next couple of months to produce an analysis by November,” Cornwall says.
“With areas such as client ID and transaction reports we are on the case … which is a big area that we need to get right.”
The Investment Association says a number of issues remain with the final technical guidance, including around bond market liquidity, equity market transparency and new request for quote protocols, which it says will lead to higher transaction costs.
“It is vital that market participants are given sufficient time to implement the revolutionary regulatory changes that are being brought about by Mifir and Mifid II,” the trade body adds.
It has already called for a delay to the implementation of Mifir from January 2017 to January 2018 to give more time for public consultation on the rules.
“From reporting on the exact products and instruments being traded to the trader pressing the button upon execution, it’s fair to say these standards give asset managers plenty of food for thought,” says Neill Vanlint, managing director of EMEA and Asia at GoldenSource, a technology provider to buy-side firms.
The final regulatory technical standards are the next step in the implementation of the Mifid II regulation in Europe. The European Commission has three months to approve any technical standards, and then any changes will be approved by the European Parliament and the European Council.
The FCA has recently voiced its concerns about the delay in Mifid II information to come out of Europe, claiming it is considering issuing its consultation paper in two parts, as it awaits more details.
The FCA added that it did not think the delays in the EU legislative timetable will mean the July 2016 transposition deadline or January 2017 date of application will change.
“The problem is that the clock is well and truly ticking. Mifid II [regulatory technical standards] leaves fund managers responsible for managing, collecting, and providing data to their reporting service all within the next 15 months,” says Vanlint.
“Crucially, additional information on both instrument and it’s issuer needs to be identified for each transaction plus an awful lot of counterparty information now needs to be managed. It’s all interrelated and it needs to be available to be reported in near real time which is why there has to be an infrastructure in place to support these linkages and ensure the right information is made available throughout the reporting stages.”
Asset managers need to make considerable upgrades to their systems and improve their data collection, he adds: “Asset managers can ill afford to have disparate systems managing their various funds and other products.”