Why the initial Markets in Financial Instrument Directive (MiFID I) had to be reassessed?
In the current context, there is so many reasons for the MiFID I reassessment and the MiFID II enforcement: the need to adapt to new technologies such as “high frequency trading”, the increasing complexity of financial markets, the global commitments of the G20 to improve the transparency for non-equity instruments (bonds, derivatives, structured finance products…) and, the last but not least, the financial crisis.
What are the next regulatory steps?
MiFID II timeline is the following:
Voted in the spring 2014, the European Directive is now in the process of ESMA consultations. Technical norms (RTS & ITS) and technical advices (TA) are expected to be issued during this period and the financial services industries (credit institutions, investment firms, investment funds) have to assess the impacts of this forthcoming text by identifying the revenue portions at risk and how the potential revenue losses can be mitigated.
What are the main changes?
In order to assess the MiFID II impacts and challenges, it is important to point out the main changes:
- payment prohibition and inducements retention for Independent Financial Advisors (IFA) and Discretionary Asset Managers (DAM) which will challenge a major part of their revenues and therefore their business model ;
- extended scope of products and activities with additional financial instruments such as structured deposits issued or sold by credit institutions, PRPIs… ;
- intensification of the investor protection;
- establishment of the Organised Trading facility (OTF) for non-equity instruments (bonds, derivatives, structured products, etc.);
- stringent corporate governance requirements and accrued definition of the the Senior Management role;
- strengthened regulatory supervision on products by Member States, the national regulators will have powers to permanently ban financial products, activities or practices;
- European harmonised regime for third-country firms;
- Extended market transparency (MiFIR Title II) and transaction reporting.
What challenges will the different sectors face and how should they address those?
Besides the impact on the P&L as inducement banning for independent advice will push the firms to find alternative sources, there will be operational impacts on people, functions, client groups, products typology, existing IT and data collection systems.
Finally, synergies with other regulations (EMIR for derivatives, AIFMD, CRD IV, MAD, etc.) will have to be anticipated.
Which actions can already be implemented as of today?
Though MiFID II will not be transposed and applied before 2017, impacts will be significant. Currently, actors should understand and assess potential impacts of MiFID II and develop a compliance strategy. Below our proposed action plan for this anticipatory phase:
How can we put our skills at your service?
Thanks to its experience, Akeance Consulting has developed a real know-how to help you overcome those changes from the strategy and organisation setting to the project implementation: