After months of rumour and speculation, The European Commission has today finally spoken out on the delay of MiFID II. The Commission has announced a 1-year extension to the implementation, making the new deadline 3 January 2018.
In justifying their decision, The Commission cites “the complex technical infrastructure that needs to be set up for the MiFID II package to work effectively”. Confirming that they see the issue in primarily market data terms, the Commission go on to state that “(ESMA) has to collect data from about 300 trading venues on about 15 million financial instruments”.
Jonathan Hill, Commissioner for Financial Services, Financial Stability and Capital Markets Union, said: “Given the complexity of the technical challenges highlighted by ESMA, it makes sense to extend the deadline for MiFID II. We will therefore give people another year to prepare properly and make the necessary changes to their systems. Meanwhile, we are pressing ahead with the level II legislation to implement MiFID II and expect to announce those measures shortly.”
This news will bring a welcome slice of certainty to MiFID II implementation teams that seemed to be operating in the dark over the past quarter. Though that warm, fuzzy, enlightened feeling may not last too long. Final text remains unforthcoming, and implementation teams continue to wait on both the final Delegated Acts and the final Regulatory Technical Standards (RTS). In this context, the Commission’s assurances that “This extension will not have an impact on the timeline for adoption of the ‘level II‘ implementing measures under MiFID II/MiFIR” will be viewed through understandably sceptical lenses.
It is not only ESMA being ready that is the issue, completing all of the work required to change technology systems, policies and procedures in line with MiFID II was an impossibility for most of the industry. The workload involved to be fully prepared for 2018 is huge, particularly in the most complex areas of pre-trade transparency, the derivatives trading obligation and product governance.
In thinking about allocating project resources this year, it’s also worth senior management considering that, just because MiFID II has been pushed back, it doesn’t necessarily mean that other, interdependent regimes have also been postponed. And this will complicate the landscape still further. The Market Abuse Directive and Regulation (MAD/R) deadline, for example, remains July of this year and, therefore, the timelines for aspects of that regime that are interdependent on MiFID II, such as the identification of what is ‘traded on a trading venue’, look extremely aggressive.
The FCA’s Senior Manager Regime (SMR) is another that will carry on, full steam ahead. SMR will force firms to identify senior managers within their organisations who are ultimately accountable for ensuring compliance with regimes such as MiFID II and, in this context, no-one can afford to take their foot off the gas, even though the deadline is extended.
“We’re no longer in an environment where decisions about how firms, and who within them, are ensuring compliance are not being tracked. If senior managers are thinking about delaying implementation programmes, trimming budgets or sending contractors home—that’s a material decision not to be taken lightly,” warned PJ Di Giammarino, chief executive of JWG.
“Firms have to do their MiFID II work in a difficult market while overseeing many complicated regulatory change programmes in the same implementation window. At the same time there will be more regulatory scrutiny of these programmes and individuals will be held responsible for non-compliance,” said Di Giammarino.