After the draft of MiFID II technical standards in December 2014, financial institutions began to get a flavour of the profound changes ahead. Scandals were propelling the drive to enact legislation that would boost market integrity through the introduction of more transparent markets. This transparency, unless adequately planned for, can require significant changes to a vast panoply of IT systems.
As the recent Cricket T20 World Cup has shown, you need both the batsmen and bowlers to perform if you want to win. In the same way, to win the regulation game you need a good performance in both the front and middle/back office, with compliance and risk umpiring. No wonder many enlightened firms are realising that January 2018 is not very far away!
Added into this mix is EMIR/MAD/MAR/PRIIPS and, driven by the G20 commitment, the clearing of derivatives through Central Counterparties when applicable. Alongside this are deadlines for regular reporting to the repositories for the largest institutions in September 2016, and in March 2017 for all other applicable firms. Firms are now undertaking new responsibilities for their own actions when trading for clients and their own books whilst keeping wicket for their client’s trade’s impact on the market. All this needs an ability to hold holistic views of all interactions and the generation of suitable reports, demonstrating and proving compliance.
With regimes such as the Senior Management and Certification Regime coming into force in the UK, it is not only the players who risk censure from the umpires for their actions but the Captain is also firmly in the umpires’ sights as being responsible for the player’s infractions.
So, the extension to MiFID II compliance is taking the game from a 20 over sprint, which would have not resulted in a satisfactory outcome, to a 50 over slog in which not hitting the required number of runs could have disastrous consequences and certainly match fines. Much remains to be done and firms should now be through the process planning phase and into implementation planning. Firms need to have identified, in the pre-match team talk, all the records that they need to collate. For example, recordings of relevant telephone conversations, electronic communications and face to face meetings, which relate to actual or possible transactions, both for clients and on the ﬁrm’s own account and hold these in an appropriate application. They need to be available in a manner that enables the rebuilding of a trade or potential trade in one auditable trail without having to interrogate multiple systems and rebuild the various moving parts. It is rather like needing the ability to go to Cricket’s DRS (Decision Review System) and get an instant replay of the events that have just taken place seamlessly and in a timely manner.
The way regulation is encompassing more participants in wholesale OTC markets (the new Global Code in FX being a prime example in the conduct & best practice world) means that all firms need to take a long hard look at the post match arena. Certainly many participants need to review and renew their disparate deal capture and STP abilities. These are in need of streamlining, but at least knocking this ball for six would deliver significant cost savings. Add to this is the actual execution phase, which needs additional strokes to the batsman’s repertoire. Requirements to correctly characterise clients in more granular detail, alongside robust systems and processes for both Principal and Agency trading are all need to be part of the game plan. Best execution is an essential addition to the on field skills with the appropriate controls and processes to ensure the bowler keeps the regulatory boundaries safe.
In summary, the deadlines (though moved) are still needing the tactics of the short game rather than that of a full test match. The willow must be kept firmly to the leather to get the correct score at the end of the game. Every day that scores a dot will become a wasted opportunity to be properly prepared, with a game plan that solves the onslaught and delivers true competitive advantage.