It’s coming! With the recent publication of the draft RTS for MiFID II and MiFIR market participants have to start setting their sights on how to prepare for this regulatory change. JWG Group’s PJ Di Giammarino offers quick views into how firms are and should start implementation plans. Comments from a recent DerivSource podcast – listen here.
Julia: MiFID II and MIFIR overlap with a lot of other regulations. What would you suggest that firms should be doing to prepare for the changes and what should they be prioritising in 2016?
PJ: It’s a great question and it gets back to if you want to be Rams Fielding about it, how do you know what you don’t know? There are literally millions of paragraphs that you have to look at with MiFID II and its interdependent regulations. What implementers really need to do is get owners for those paragraphs in a thematic way, assigned to people that are going to make the decisions about what they’d like to do about it. And to make those decisions they really need to take on board the philosophy in the way the regulators are thinking about what’s different in 2017.
So it needs to be something that though we’re conducting business a certain way today, I’ve got an eye to the future and I’m thinking about interpreting all of those various requirements. And what that means is not only my customers but all my suppliers up and down the chain, because there will be lots of new ways of thinking about how I can go about satisfying those obligations and some of them will be more attractive ways to clients than others.
Julia: How are participants already starting to prepare and how do you expect firms to start tackling implementation from a governance perspective?
PJ: There’s no one answer because every firm organises itself slightly differently, but those leaders that we see out there which could change the bank programs are clearly segmenting those issues according to the types of skill sets in owners they need in order to line up against the business and make appropriate decisions.
Our MiFID Implementation Group has a variety of folks that will come to the various topics that we hold; if we’re talking about a pre-trade or maybe a post-trade transparency issue, they’re making sure they get the business analysts and the CEOs that are close to those desks there to talk about the operational issues and how they’re going to perform common policies.
If we’re talking about investor protection, obviously there are folks that have been through the RDR Wars, the PRIPS discussions, all the various governance and product control type issues; they’re weighing in. And ultimately if you get down to things like systems and controls issues around algo-trading and any of the discussions about how do we monitor and track what’s going on, you tend to get more folks from the middle office and compliance coming to talk about how they’re doing.
At the end of the day, it all gets down to knowing your deltas, and the deltas are twofold. One is: what did MiFID I say, and how did I implement MiFID I? And then what’s happened between MiFID I and today, for example the best execution review that’s happened here in the UK, and what did we do about that? Because only then do I now know how I’m getting ready for MiFID II and I need to think about my global operating model and what matters where from the way that I’m running it.
So those deltas are key, and knowing where the interdependencies are cross-regulations and cross-regimes are important to be able to formulate a plan to get the thing done right, because as we well know, we’re only 64 Saturdays away from implementation.
Julia: So, let’s talk about solutions, are there existing solutions or do new ones need to be developed in order to help institutions prepare for MiFID in the future?
PJ: Absolutely. The great news is that we’re now in an age of Fintech where lots of investment has been made in these companies and platforms where they can actually bring new things to market.
Obviously a lot of our old partners are still there, trying to figure out how to use the same new technology, so it’s a very, very interesting landscape as we watch the Arms & APA races and how they’re going to figure out down-managing all of the transparency and the post-trade transaction reporting.
We’re seeing more in the instrument golden source utility space start coming out. We’re seeing folks going after the whole research management and building challenges.
All of these kinds of things are very, very fundamental to the whole industry in that they need to get on a common standard that everyone says is good enough. So the great thing about people coming together on these common solutions is that they can then get to what becomes acceptable industry practice and that can evolve as the requirements become clearer.
Julia: JWG has a special interest group that focuses on MiFID II, what are their concerns and where is their focus now and for the next year?
PJ: The special interest group is implementation-oriented, so it’s really the program managers of the largest firms trying to work out how are they going to get it all done in time? So obviously there are some things that aren’t as clear as others, but what they’re looking at are really how do we get to clarity around what we need to do to solve the problem.
Because as soon as we know it’s solvable, we can then start the project to actually do something. So we’re getting away from what it could mean and turning that into what we actually are doing.
This gets back to the capability of regulatory change management, so all of them are trying now to make sure they have this comprehensive list of obligations that they can check off against the fact that they’re going to meet them all in these various programs, and that’s where having platforms that allow you to wire all that content, like RegDelta does, into accountability by owner become critical.
So the kinds of things that we’re going after now… As we record this, we’re heading into MIGs 18, 19, 20, 21, 22, 23, and will probably wind up in the high-20s by the end of the year, every one of those meeting is bringing the experts together to talk about what’s the problem and what are the options to solve it?
It’s not particularly earth-shattering space for a lot of the folks in the legal profession, but actually it’s really, really exciting when it comes to how do we think about dealing with the post-trade reporting issues, or how do we think about the record keeping challenges, or how do we look at the repapering challenge with the customer, or how do we get the right kind of product sheets out there for to meet the requirements of lots of people who want to know about all these instruments?
And that’s where the synergy happens and having right-minded people around the table really matters. This isn’t just a sell-side thing, we’re also talking about the buy-side, we’re also talking to the financial market infrastructure, how do we involve the right people at the right time.
At the end of the day, collaboration is key, that’s one of our core principles, that’s what we always set out to do. We’re bringing the right people together around the topics with a governed and controlled view about what needs to happen so the market can sort itself out and can get there on the 3rd January or whatever the new date may or may not be, to be able to get the right bit in at the right time.
