Despite news of a possible extension to the Markets in Financial Instruments Directive (MiFID) II implementation deadline, the clock is still ticking for firms to be fully prepared to efficiently implement the complex and wide-ranging set of rules.
Given the significance of this, Jon Hogan, KPMG in the UK, was in the Parliament on 10 November observing the dialogue between the Commission, ESMA and MEPs.
Regardless of what is ultimately decided by policymakers on the duration and scope of a delay, maintaining momentum on MiFID programmes is vital. If a delay is confirmed, it is unlikely that firms can rely on any of the supervisory tolerance which may have been granted with the original deadline.
Following persistent rumours of a delay, more definite news came from the European Commission on 10 November, during a scrutiny session of technical standards in the European Parliament. MEPs were due to give feedback on the technical standards published by the European Securities & Markets Authority (ESMA) in October.
During the hearing, ESMA spoke of the need for a delay as the technical standards were unlikely to be ‘stable’ until early 2016 and time was needed for building and testing the IT systems that MiFID requires – in particular, systems for transparency and transaction reporting. The European Commission confirmed that work was still ongoing on both the technical standards and also the delegated acts, and they were unlikely to be published until early 2016. The Commission suggested that a year delay on the whole package was needed in order to complete the work and allow both supervisors and the industry time to implement the required changes and create the systems needed.
Despite voicing concerns over the possibility and implications of a delay, MEPs were still not happy with elements of the technical standards that they say require further work before they could approve them. In particular, the criteria used to determine the liquidity threshold that would trigger pre-trade transparency on bonds was questioned and also the thresholds for commodity position limits. On the delay, MEPs said that further discussion would be needed before they could agree. This discussion took place during a public hearing, however, the decision will be made in private.
It is unclear what will happen next, for a delay to be formally announced all the legislators from the European Commission, Parliament and Council would have to agree to it. Coming to an agreement on whether all or part of the rules are delayed, by how long and through what mechanism is also unclear. The 2017 implementation date is written into the legislation and so to amend this would either require re-opening the text or producing a separate piece of legislation to amend. Neither of these options are quick fixes and will take time to progress.
The loss of momentum is now the greatest risk feared by both regulators and those managing MiFID II implementation programmes. It is unlikely that the scope of requirements on banks, investment managers and commodity brokers will change - advanced firms are planning the implementation in detail with assumptions. Those firms that are more advanced already know just how complex the implementation across most parts of their businesses will be and so will use any extra time wisely to make sure they make the most of efficiencies on data, systems and reporting.