OTC subject matter expert Sol Steinberg on where are we at with MiFID implementation as we head into 2016 and deal with the newly delayed timetable
We have been looking at MiFID for over a decade now, in terms of when the first proposal was put out for public comment. As such, MiFID is one of the most well thought out pieces of regulation that we have seen, and there has been a willingness on the part of regulators to make adjustments to the framework when necessary. However, there are many cases to think through as we look ahead to MiFID II.
The MiFID regulations don’t exist in a vacuum – there are questions for each transaction in terms of which specific instruments can be caught up in MiFID. This means the regulation has implications all the way through both the buy side and the sell side. In addition, compliance teams will have to ensure that processes and products also comply with other regulations which can be more complex – like EMIR. On top of all of that, all 28 states in the EU have different interpretations of the types of data that they want and different standards for how that should be reported.
In order to meet all of these needs, financial institutions will have to develop core regulatory processes that have an underlying data treatment that is interoperable across a range of systems and reporting types. In some cases this could mean having databases that extend into the millions of rows. Transaction reporting has to fit within this broader context and still meet best execution for the customer who is less concerned with how a financial firm manages its internal processing when it comes to completing a transaction.
ESMA is now excepting the 20022/xml data format for reporting, which is a significant and positive shift for the regulator. This is an acceptance of international standards of reporting and has the potential to improve interoperability among data sets. It is also a recognition by ESMA that the kind of reporting required by MiFID is so far reaching that it will take a lot of hard work to implement.
Those who look at the 65 fields of data that make up MiFID may think it’s easier than all of this sounds. However, each one of those fields requires a lot more detail than previous reporting efforts, and as already mentioned, each of them have to be in-line with other compliance requirements. It is important to focus on where the industry is heading as well in terms of emerging standards so that you align with the herd and don’t become an outlier.
Looking ahead the timeline for this year is as follows. It is important not to pay too much attention to the delay as a delay is likely not long enough to let a firm start from scratch. By the end of this month, the first official journal and delegated acts are to be made available. ESMA will also have a final draft of its guidelines and by the beginning of April, and the European Commissions is expected to have adopted those guidelines. By 2018 things should be in high gear and ready to go.
