MIFID II delay gives industry more breathing space, but no respite for legislators

February brought ‘good news’ to the financial industry, with the Commission ultimately tabling a proposal that will delay its flagship piece of financial regulation, the second Markets in Financial Instruments Directive (MiFID II) and its accompanying Regulation (MiFIR), originally set to apply from 3 January 2017, into 2018.

The warning signs have been apparent for some time, but particulalry so since the European Securities and Markets Authority (ESMA) recently signaled the difficulties it was facing in conducting a huge data collection exercise mandaed here, and put in place all technical systems required for the implementation of the new rulebook ahead of January 2017.

Considering the complexity of the incoming rules, as well as responding to industry’s repeated warnings that the timeframe to implementation is too tight, the European Commission proposed extending the application of MiFID II and MiFIR to 3 January 2018. While the  extra one-year legislative respite from an overhaul of EU trading rules has been welcomed, it is still uncertain whether this will provide firms with sufficient time to get their houses in order, especially with the final implementing rules having been absorbed in the Commission’s intricate adoption processes.

Furthermore, the Commission’s decision to restrict the proposal to certain fixed dates, notably omitting a corresponding delay in the deadline for statutory implementation for Member States, has dampened industry’s hopes for corrections to  widely acknowledged errors in the Level 1 texts. For its part, the Commission feared that engaging in such tinkering would open a Pandora’s box for changes, jeopardising hard fought compromises between co-legislators and causing further delays.

On the other side of the negotiating table,  Parliamentarians suggested amendments so that the new framework, apart from a new national transposition deadline, would provide for the special treatment of package transactions; the exclusion of certain securities financing transactions from the rules on transparency; and the possibility for non-financials’ to hedge risks on own account, by staving off rules meant to govern high-frequency traders. Ministries are also expected to join forces to win ‘quick fixes’ of substantial provisions, alongside an extra 12 months to transpose MiFID II and its implementing rules into national legislation.

March will see the Council formulating its position and the European Parliament’s Economic and Monetary Affairs (ECON) Committee voting on the proposals, before they sit together with the Commission to seal a deal, allowing for the final signing-off of the ‘quick fix’ to take place in April.

Meanwhile, the Commission will be rushing to complete the Level 2 work, i.e. the adoption of delegated acts and technical standards implementing MIFID II/R, in order to, first, satisfy one of the pre-conditions set by the Parliament for its approval of the proposed delay and, second, allow firms to shape up their compliance systems based on definite rules.

MiFID II remains a hugely challenging task and for affected firms; 2016 will no doubt be devoted to designing and putting into place the necessary programmes and IT structures to ensure that the right tools and expertise are in place before the new rules kick in on 3 January 2018.

Salvatore Ferrara