If the G20 had given birth to a child at the Pittsburgh Summit, that child would now be off to school. In other words, we’ve come a long way since the early policy-making stages of the post-crisis political landscape. As such, EU regulators are eager to get this round of rulemaking over and move onto an agenda for growth. However, 17April 2014 represents a watershed for this. On this date, the European Parliament goes on a three-month hiatus in order for the elections to take place. So what do they hope to finish by then, and what do you need to be preparing for after summer?
Coming in at number one is MiFID II. The key areas of change for firms under MiFID II are more pre-trade transparency and faster post-trade transparency, more detailed client suitability reporting and the obligation to trade derivatives on-exchange. These changes will mostly affect the way the front-office works and will require client-facing roles to get in touch with IT and the back-office in order to solve. There are also new requirements for firms to rigorously test their algorithmic trading capabilities.
As a clear priority, the revised Directive and Regulation are set to be completed well ahead of the election. With the Council having finalised its general approach to the revised Directive and Regulation back in June, work is already well underway. The Parliament is due to consider the texts during its early December plenary session. However, many of the technical standards are already being written and so, once the primary legislation comes into force in early 2014, the consultations are expected to start coming thick and fast.
[pane title=”Known Unknowns”]
- What obstacles exist within your firm to each of these new regulations?
- Who will take ownership for projects that impact across the whole firm?
- Which regulations will not make it through the EU legislative process before the cut-off date?
Number two is about the Recovery and Resolution Directive (RRD). This is a key part of the post-crisis regulatory agenda and is going to suck-in people from all over the firm to contribute to the macro-plan. The RRD requires banks to draft living wills, which set out recovery actions triggered by firm-specific stress indicators. It also compels them to record, and report on demand, records of financial transactions. Finally, firms must ensure they have adequate loss-absorbance capacity in the form of bail-in-able debt. The Directive is due to enter trilogue negotiations in November. Provided these go smoothly, a final text is expected early next year for transposition into national law in Q1 2015.
Possibly in the same email as MiFID, the revision of the Market Abuse Directive and Regulation (MAD II/MAR) will be another project making headlines. What has changed? Similar to MiFID II, MAD II/MAR expands on the scope of the original regulation by covering off the new classes of trading platform bringing OTC trades into scope. The definitions of insider trading and market manipulation are also expanded to cover commodities and cross-market manipulation respectively. This package will largely follow the MiFID II timeline as the two are symbiotic and augment one another. The text was provisionally agreed between the Council and the Parliament in June, and compliance is expected to be from January 2015.
The new General Data Protection Regulation (GDPR) is a project with global implications that will require buy-in from across the firm. Firstly, firms and vendors will have to explicitly consider data protection objectives when designing new systems. Secondly, firms will have to report any breaches of data protection, even where these are accidental. With no approach taken by the Council yet, the Regulation is still in its early stages and it will be a while before the GDPR goes to plenary. However, recent political events have expedited the initiative, meaning that EU politicians are keen to see the text finalised in early 2014.
Finally, the 4th Anti-Money Laundering Directive – which expands the risk-based approach, widens the definition of politically exposed persons, includes tax evasion as a predicate offence and introduces new standards on the management and definition of beneficial ownership – is still subject to discussions between the Council and the Parliament, and has yet to be given a clear date for finalisation.
In short, we are at a peak in the iterative rule-making process. What’s clear is that there is going to be a huge change requirement from the EU in early 2014. And whilst it is not yet clear who you will need to speak to in legal, compliance, strategy, or even government affairs, the ops and tech plans and budgets can’t wait.
- The European race to implementation will not be like a Dodd-Frank round 2, nor will Asia be round 3
- The European Parliament is up against a tough schedule to finalise rules before the election next April
- New regulations and implementation are being squashed into a tight window leading up to Q1 2015