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Trick or treat? What ghouls & demons can we expect to be knocking on our doors? MiFID III (yes three!) possibly a big demon?

[fa icon="calendar"] 31-Oct-2017 10:12:46 / by David Woolcock

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Halloween got me thinking as to what demons the European markets might expect on a spooky night like tonight. What could come knocking at our doors and will they be trick or a treat? 

The big demon for me is the prospect of MiFID III just a year after the launch of MiFID II. What has caused this particular devil to appear before we have even gone live with MiFID II? Well, Kay Swinburne, member of the European Parliament and vice chair of the parliamentary committee on economic and monetary affairs has given an interview on the sidelines of a conference and opened Pandora’s Box. “The legacy of putting good strong financial regulation in [place] is one I am proud of. Have we got all of it right? No. Do I think MiFID III is around the corner? Yes.” That is a scary thought indeed.  We were, however given an indication of timing, “MiFID III will be talked about a year after implementation on the basis that we will have data. There will be analytics.  People will be able to say ‘this data demonstrates [that] we should be doing it this way [not that way]’….With at least a years’ worth of data we would be able to make better legislation.” For me this one is definitely in the trick camp! 

The next ghoul prowling around the darkness of the night is that of LEI’s. Remember from my earlier blog “no LEI, no Trade”? - this has been reiterated by regulators. In Germany BaFIN gave an indication of how seriously this needs to be taken. An exchange asked what they should do if say a foreign company had not got an LEI. The response was pretty clear “We went to BaFIN and asked them what can we do? Can we use the exchange LEI? Currently the response is de-list it. How does the investor look at that? Delisting is not the answer. And you can't influence companies in South America and elsewhere who are not under MiFID II. They don't care about the LEI." Good news is that if you do not have an LEI for a customer, you can apply on their behalf and pay the small fee. In addition, the LEI does not have to be active so you do not need to pay for annual renewals. This is certainly in the treat camp! Treat your customer to an LEI today! 

Another big beast roaming the night is communications recording and accurate timestamps. This is crucial and we need to bear in mind that recordings must be easily accessible and retained for at least 5 years. To get these accurately timestamped to other records required for best execution purposes etc. is causing some to hit problems. It must be born in mind that all interactions that could lead to a quote or trade must be captured. On top of this is the need to ensure best execution policies can achieve the best results for customers when executing orders, and this entails an increase in monitoring. All this requires a searchable, reportable and auditable process accurate to the exacting timestamping requirements. This is a definite tricky set of obligations to keep the beast at bay! 

As if these were not enough spooky doorknockers keeping us awake, we still have the other witchcraft to master namely the reporting spell. The FCA recently meted out a £34.5 million fine for reporting failures, which should concentrate the mind on this alchemy. As noted by Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA - “Effective market oversight depends on accurate and timely reporting of transactions. The obligations under EMIR, as with MiFID, are key aspects of such oversight. It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly.  There needs to be a line in the sand.  We will continue to take appropriate action against any firm that fails to meet requirements.” Definitely treat yourself to a comprehensive test of the reporting systems to avoid risking the regulators conjuring up a trick in the form of an expensive fine.  

Your friendly Ghostbusters at Eurobase Banking Solutions are ready to banish your worst nightmares – just give us a call. HAPPY HALLOWEEN! 

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Topics: ACI, Banking, MiFID, MiFID II, Blog, Halloween, Compliance, Regulation

David Woolcock

Written by David Woolcock