European policymakers could push back the implementation deadline for Mifid II as concerns grow that firms will run out of time to comply.
The FCA is due to publish its Mifid II policy statement in June 2016, before the legislation comes into force in January 2017.
There are unresolved issues with Mifid II, including a requirement to disclose all charges relating to a product to investors upfront, a different independence definition and tougher inducement rules.
However, the FCA cannot start the consultation process until the European Commission publishes final technical standards.
Draft technical standards published by the European Securities and Markets Authority in September still have to be endorsed by the commission, a process that could take up to three months.
The commission has also yet to publish delegated acts – the detail underpinning the retail part of the legislation. These were due in July but are now not expected before the end of this month.
The FCA has said it will publish one consultation paper on markets issues in December, and another on conduct issues in March. “However, it now looks pretty unlikely that we will have both completed by the end of this year.”
Cicero Brussels deputy head James Hughes says: “Everyone has been working towards the technical standards and delegated acts being finalised by the end of this year. That would give national regulators enough time to prepare their domestic consultations and the industry close to a year to get ready.
Wealth Management Association director of regulation Ian Cornwall says: “January 2017 would have been a tight deadline even if the delegated acts were published in July, but we have lost five months and it is almost impossible now. However, our advice to our members remains that they should plan for a January 2017 implementation date.”
MEPs are discussing whether the implementation could be delayed.
Hughes says: “We have spoken to a lot of MEPs and they have competing views on how easy it would be to introduce a delay. The FCA is certainly sympathetic to the fact the timetable is becoming increasingly condensed. If the deadline stays the same, the FCA could signal to firms that it will be lenient initially, provided firms can show they have made sufficient effort to comply.”
In a speech at the FCA’s Mifid II conference last month, FCA director of markets policy and international David Lawton said: “We are all too aware that the later it is we consult on, and finally publish, final rules, the less time it is for the industry to prepare and implement. Be assured, we are treading the line between getting things right and moving quickly, carefully.
“The ultimate deadline of January 2017 is universally recognised as challenging. For everyone. Regulators included.
“Even now that Esma has delivered the draft technical standards, it will be for the commission and co-legislators to make decisions about the European timetable, not for national competent authorities.”
Expert view: Mifid II shambles must be delayed
It is a racing certainty that the implementation date will be delayed. If you read David Lawton’s speech at the FCA’s Mifid II conference carefully, he is signalling as clearly as any official can that there is great uncertainty about the timetable.
Furthermore, in International Organization of Securities Commission circles they are talking about not just a 12-month delay but a delay of two or three years.
This is like Solvency II all over again, where the implementation date was eventually delayed by eight years. Frankly, it is a shambles. The European regulatory system is just too cumbersome.
It is very easy to draft the high-level stuff, but then you delegate to technical experts on how it will be implemented. And sometimes you discover that things don’t work in practice.
For example, the idea of having to disclose all product costs upfront is pretty stupid because for funds you only know the costs after the event. Regulators are straining so hard to achieve greater levels of consumer protection that sometimes it cannot be done.
To change the implementation date would require another piece of legislation, but we know it can be done because it has been done before. What the FCA was signalling at the conference was that we are out of time already.
The timetable was very tight 12 months ago; now we are staring down the barrel of a gun.
Richard Hobbs is an independent regulatory consultant