So the 3rd of January came to pass and the City was not plunged into meltdown by the implementation of MiFID II/MiFIR. Some confusion reigned due to the late announcement of 6-month smoothing exercise to the implementation of LEI’s. The summary statement was –
“In that context, and to support the smooth introduction of the LEI requirements, ESMA will allow for a temporary period of six months that:
- Investment firms may provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code, under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf; and
- Trading venues report their own LEI codes instead of LEI codes of non-EU issuers currently not having their own LEI codes.
This approach is shared by ESMA and NCAs. More details are available in ESMA’s LEI statement.”
Reports indicate that some ARM’s have had problems with this very late change. It also caused the UK FCA to issue a statement regarding its own implementation of the change –
“As ESMA’s statement notes, this approach requires the FCA to temporarily amend a validation rule in our transaction reporting system, the Market Data Processor. We will do this as soon as possible, but that change will not be made by 3 January.”
In the meantime, firms should note the FCA statement that “executing firms should not seek to submit reports that would not normally pass that validation. We will have the facility to accept these reports when the validation rule change has been made.”
Otherwise, the general outcome has been that the world did not end and chaos did not ensue. However, I am hearing anecdotal reports that the big casualty in all this has been trading volumes with an exceptionally quiet start to the New Year. For those with an interest in Equities the news regarding dark pool caps being delayed drives a stake through one of the hearts of MiFID II and will certainly elicit comments about NCA’s dealing with floods of data!
Post MiFID II implementation firms will now look to the opportunities of MiFID II. Many will have put in solutions that are not optimal going forward and will look to consolidate on a holistic solution that will put them in a more competitive position. This is especially important as we can expect some tweaks and changes to come in down the road and for those that have fragmented solutions the cost of change will be realised.
With MiFID II out of the way as the primary focus, it is interesting to see what is exercising Brussels watchers. In the UK, you would be excused for thinking that Brexit is the main focus. You would be mistaken to assume this was dominating thinking on Rue de la Loi. Integration of the EU is firmly #1 on the agenda. In particular, as we go through 2018 expect to be hearing a lot about Banking Union and the continuing saga of Capital Markets Union. Also towards the end of the year, keep an eye on talk of MiFID III.
Attention will now swing to GDPR and the implications that has for the financial industry. It is certainly shaping up to be a massive compliance elephant in the room with potentially far-reaching technology implications. Not least of which is the conflict between MiFID II retention rules and the GDPR requirement to “forget” clients that so request. What chills the blood is talk of GDPR II being proposed to deal with non-personal data and with consequent implications for Cloud computing.
Last but not least the delayed but not derailed Fundamental Review of the Banking Book (FRTB) will begin to become centre stage given the enormity of the task it represents. This will not be solely an impact for Risk departments but will impact directly on the Front Office with implications for the Treasury Management System (TMS) and though the timelines stretch long into the horizon it will pay to plan ahead.
Other developments in the UK but no doubt closely followed elsewhere concerns the Codes of Conduct such as the FX Global Code and UK Money Market Code. The FCA is proposing “a general approach to supervising and enforcing our Senior Managers & Certification Regime (SM&CR) rules for authorised firms’ unregulated activities, including those covered by industry-written codes of conduct.” This includes “starting a discussion and seeking views on extending the application of FCA Principle for Businesses 5 – A firm must observe proper standards of market conduct – to unregulated activities.” Currently they are consulting the industry -https://www.fca.org.uk/publications/consultation-papers/cp17-37-consultation-paper-industry-codes-conduct-and-discussion-paper
The consultation runs until the 5th of February and I would be very interested if any of my readers have any comment on this, as I am involved in the industry feedback process. Please feel free to email me your thoughts, which will remain confidential.