I faced a difficult decision last Bank Holiday Monday: file away a pile of personal documents I had been ignoring for many months, or spend the day out with friends. The filing looked like it would take a long time, and be complicated to untangle – but it would benefit me in the long-run. On the other hand, the opportunity to wind down and see old friends is precious. I’m sure many people faced similar decisions that weekend – the choice between doing the things they wanted to do, and the things they had to do.
MiFID II delay
How is this relevant to the Markets in Financial Instruments Directive, known as MiFID II? Many financial firms will be breathing a sigh of relief. On 28 April, European Union countries collectively supported a proposal for a one-year delay to the legislation. Whilst a delay has been on the cards for a while now, this is one step closer to formally delaying the legislation to 3 January 2018, rather than 2017, giving firms another year to postpone – or start making arrangements.
Under MiFID II, trading venues and investment firms operating in the EU will be required to submit a wide range of reference and transactional data on an even greater range of financial instruments to their regulatory bodies. All current and some new regulated firms and venues will need to forward information on trading that takes place within their company – equities, bonds and derivatives – and send transaction reports, commodity position reports, transparency reports, double volume cap reports and reference data, to their country’s regulator.
The full conditions that firms will have to comply with are yet to be finalised by ESMA. Many organisations may be tempted to wait until they have 100 per cent clarity on the requirements given the complexity of the Directive – and to leave that pile of filing to another day. The issue, however, is that there is still significant risk. If you are not compliant by the due date, you run the risk of fines, the inability to trade, and severe reputational damage. Given the delay to the implementation date, the Regulator is likely to be less tolerant of any non-compliance. There is a natural business tension between what you want to do, and what you have to do due to regulation.
Fail to plan, plan to fail
The answer is simple: fail to plan, plan to fail. My company, Sopra Steria, has provided solutions for financial services regulation for over 10 years – we’ve been involved with solutions for a wide range of regulatory compliance programmes (including IFRS9, BCBS239, Basel II and AIFMD), for both the UK regulator, the Financial Conduct Authority (FCA), and for regulated firms.
Our experience shows that preparation and partnering with the experts are essential. Both options are available right now, which is why the FCA has chosen us to deliver a new solution that will support them with MiFID II, and therefore ensure investment firms’ trading reporting activity remains compliant. The FCA will be receiving millions of transaction reports a day from January 2018. Our solution, the Regulatory Support Service (RSS), is capable of receiving and storing billions of transaction reports. Its reporting warehouse facility will interrogate large amounts of data with the purpose of giving the FCA greater transparency, and therefore a larger breadth and scope of information on reported transactions, helping to ensure markets operate smoothly and reduce the risk of abuse.
Technology has come a long way over the past decade. The RSS platform has scalability and the ability to operate completely independently from existing architectures, hosted on Amazon Web Services Cloud. From the outset we designed a shared platform model that will enable other organisations to be part of a system that sits right at the heart of MiFID II developments, as we continue to work closely with the FCA. The opportunities for reducing the cost of regulation are substantial: the high-speed data ingestion and processing capability can be adapted and scaled for other European regulators, and for regulated firms.
We see MiFID II as an opportunity for the FS industry – it is a catalyst for modernisation, rather than simply creating the next generation of legacy technology.
Time to take action
January 2018 may seem a while away, but in reality firms need to be compliant and ready by this date, leaving little time to prepare – and there is no time like the present when it comes to planning. It doesn’t need to be difficult, or put in the corner and ignored for months to come. The technology and services to help you prepare are available now, so it’s time to make a start to becoming compliant.
What are your views on this? Leave a reply below, or contact me by email.