Firms have been given extra time to implement the Markets in Financial Instruments Directive II (MiFID II); but the breadth and complexity of the new rules means that most firms will still find the implementation timeline challenging.
Since November of last year, it has been expected that the implementation date of the Markets in Financial Instruments Directive (MiFID) II would be delayed. It was also expected that the delay would be for one year, but the four European institutions involved have been discussing the scope of the delay – should implementation of all the MiFID II provisions be delayed or only some? The European Commission has now confirmed a one-year delay for the whole of MiFID II and the Markets in Financial Instruments Regulation (MiFIR). The legislation to achieve this also amends MiFID II references in the Market Abuse and Central Securities Depositaries Regulations. However, there is no delay to the MiFID II transposition deadline for national regulators and the detailed rules at Level 2 are still awaited.
Members of European Parliament discussing the delay called for the deadline for national authorities to implement to be extended, and also proposed fixes to primary legislative text on packaged transactions and corporates forex trading. These further complications to progress will raise concerns over the entire timetable for implementation.
The new deadline for implementation is 3 January 2018. The Commission explains that the delay is to take account of 'the exceptional technical implementation challenges faced by regulators and market participants' and 'the complex technical infrastructure that needs to be set up for the MiFID II package to work effectively'.
The European Securities and Markets Authority (ESMA) has to collect data from about 300 trading venues on about 15 million financial instruments, which requires it to work closely with national competent authorities and the trading venues themselves. In November of last year, ESMA informed the European Parliament and the Commission that national authorities and market participants would not have the necessary systems ready by the then 3 January 2017 deadline.
It is surprising that the legislation does not amend the date by when Member States must adopt and publish national laws to transpose the Directive. This date remains 3 July 2016, which will allow very little time for Member States to take into account the detailed Level 2 rules and may require them to adopt a two-stage approach to transposition. We understand that a number of Member States have requested a delay to the transposition deadline.
The Commission has further announced that it is 'pressing ahead with the level II legislation to implement MiFID II and expect to announce those measures shortly'. These detailed rules are critical as firms need them to proceed with the final stages of the technical implementation of many of the MiFID II requirements. It remains uncertain whether all the Delegated Acts and Regulated Technical Standards will be issued on the same date. We understand that their release might be staggered between February and April as some technical issues are not yet finalised.
The legislation that introduces the delay also amends the Market Abuse Regulation (MAR) and the Central Securities Depositaries Regulation (CSDR). It does not introduce any delay to their implementation. Both these Regulations require that the relevant definitions and concepts in MiFID II be used from January 2017 (the original deadline for MiFID II). The new legislation will, instead, require the MiFID I definitions and concepts to continue to be used for an extra year.
Most firms are still at the planning and earlier implementation stage and are waiting for the technical requirements to be finalized before starting major operational, systems and data changes programs. The risk is that waiting too long before starting implementation means they will run out of time. A better strategy is to start now and factor in some optionality on areas where there may still be some change.