MiFID II and MiFIR Reviews


July 6, 2021

MiFID II/MiFIR post-implementation reviews, proposed changes and unintended consequences.

Explore our insights and what this might mean for your firm.


The Markets in Financial Instruments Directive II (MiFID II) has applied since January 2018 and was the largest overhaul of financial services regulation of the decade. MiFID II impacts the entire investments lifecycle and enhanced and expanded regulation of financial institutions, their services and activities within the European Economic Area (EEA). This includes investment firms, trading venues, data reporting service providers and third country firms providing investment services or performing investment activities into the EU (either on a services basis or via a branch). MiFID II requirements govern many areas of Pershing’s and its client’s (particularly wealth managers) business.

MiFID II/MiFIR Reviews

MIFIR and MiFID was implemented over three years ago and as expected it is subject to a number of post implementation reviews and proposed changes.

The European Securities Markets Authority (ESMA) has published final reports with proposals relating to, among other items, pre- and post- trade transparency (the double volume cap, the systematic internaliser (SI) regime, algorithmic trading, the trading obligation for derivatives, small and medium-sized enterprises (SME) growth markets and the functioning of organised trading facilities (OTFs)), transaction reporting, and investor reporting. These reviews are not another ‘big bang’ implementation but instead propose targeted changes to the requirements that have not worked as expected (costs and charges, product governance and research unbundling obligations). Changes are also made in the context of the UK having left the EU. For more details on these reviews and how they impact the UK market vs EU please see the divergence tracker below.

At the time of writing, we are awaiting the European Commission’s (EC) response to the proposals contained within ESMA’s final reports.

MiFID ‘Quick Fix’

Separately and in response to the Covid-19 pandemic, the EC issued in July 2020 a proposal to, amongst other things, phase-out of paper-based communication, exempt costs and charges disclosure for eligible counterparties and professional clients, disapply research charges, and suspend best execution reports for venues (RTS 27). The aim was specific requirements of MiFIR/MiFID II, to streamline regulatory requirements whilst allowing for more flexibility for wholesale clients.

The EC was looking to introduce these changes as ‘quick fixes’ to mitigate the effects of Covid-19 and originally sought to drive for early application of the amendment but the changes are now expected to come into force early 2022. You can see how these changes affect the UK in the divergence tracker below.

Please see Frequently Asked Questions on the right-hand side of this page for further information on the key aspects of the MiFID Quick Fix Directive.

UK/EU Divergence

For firms operating in the EU and UK, regulatory planning has become more difficult with divergence across new and changes to existing regulation, the review of MiFID II being a prime example. While the UK on-shored MiFID II as result of Brexit and starts from a position of an harmonised rulebook, it is not clear to what extent the proposals made by the EU either through the MiFID II reviews or the Quick Fix proposals will be adopted by the UK. There is also potential for the UK to propose its own amendments to requirements the EU has not sought to change.

An early example is the EU Quick Fix, the FCA has so far responded on just two items - best execution and research unbundling - and their proposed changes in both areas are wider than the EC’s (see details in the divergence tracker below).

Pershing Comment - Linda Gibson, Director of Regulatory Change – July 2021

Regulatory divergence should very much be the focus of individuals at UK firms charged with reviewing and advising the business on the impact of proposed changes to MiFID II. Currently there are limited changes put forward by the UK government to MiFID II. The UK government has said it will remove both the share trading obligation (the requirement that shares are traded on a trading venue) and the double volume cap restrictions placed on trading shares under certain pre-trade transparency waivers (often referred to as trading in the dark book) from its rulebook.

The UK government are expected to publish further proposals in summer 2021 outlining other amendments to the on-shored UK MiFID II regime on the basis that these changes will focus on what is best for the UK market. Clearly tracking and interpreting all things MIFID II will be more complicated for both EU and UK firms going forward especially around market access, solicitation and servicing clients.

Pershing’s Regulatory Change Team continue to monitor developments in this area.

Pershing Divergence Tracker1

Overall, the impact of the MiFID II review is likely to create some confusion across the industry for firms operating across jurisdictions with potential duplication of effort and the need to work to different timelines. Given the difficulty of navigating all the changes, Pershing has started a ‘divergence tracker’ to help our business provide an overview by theme of how the EU and UK requirements are changing.

1 The Divergence Tracker (DT) is the result of a review of all the publications listed in the Annex (available on request). The DT is limited to items that Pershing believes to be of interest to its clients and is not a comprehensive assessment of all the changes to MIFID II that may apply to clients. Furthermore, the DT is not intended to be legal advice and any clients in doubt of the impact of any of the information set out in the DT should seek independent legal advice.