September 21, 2017
The following general MiFID II FAQs will attempt to clarify some of the key issues surrounding MiFID II.
This page is intended to be continually edited and updated as and when new questions are received. The date on which the page was last amended is included for ease of reference.
In 2014, the original MiFID regime was repealed and gave way to the adoption of MiFID II, a legislative framework comprising of both the Directive (MiFID II) and the Regulation (MiFIR). The Markets in Financial Instruments Directive (MiFID II) is one of the most significant regulatory changes faced by our industry in 2017. The directive impacts the entire investments lifecycle as it enhances and expands regulation of financial institutions within the European Economic Area (EEA) as well as those providing services cross-border.
The new MiFID regime is a response to the unanticipated consequences of the original MiFID legislation, taking into account the developments within the trading environment since MiFID I's implementation as well as the lessons learnt from the 2008 financial crisis. The revised regime significantly enhances the current MiFID requirements.
MiFID II applies to those financial services businesses undertaking MiFID business anywhere in the EU as well as those providing services cross-border. 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 impacts all areas of Pershing and provides clients, and particularly wealth managers, with increased obligations.
MiFID II will take effect from 3 January 2018. EU member states have until 3 July 2017 to transpose the new rules into national law.
The scope of instruments to be reported is extended to any financial instrument traded, or admitted to trading on a venue or which a request of admission to trading has been made.
The number of data fields is significantly increased from 24 to 65.
The scope of reportable transactions (to national competent authorities) is significantly extended in terms of:
Reportable data is extended to provide greater transparency. This includes the reporting of the Marketing and Communications investment and execution decision makers which may include algorithms and new fields that will identify individuals and entities.
A transaction report may now be submitted directly to a competent authority by an investment firm, sent via an Approved Reporting Mechanism (ARM) or submitted by the trading venue through which the transaction was completed.
MiFID II is a complex piece of legislation that introduces more regulation and has a wider scope than the current regime. MiFID II impacts all areas of Pershing and provides clients, particularly wealth managers, with increased obligations. The changes introduced by MiFID II will reshape European financial markets, posing technological and commercial challenges to how investment firms and trading venues conduct business.
Pershing launched the MiFID II programme in 2015 and is also a part of the wider BNY Mellon Programme. Dedicated work streams have been established. Compliance SMEs have completed gap analyses for each work stream. Business Viability Assessments have been completed to identify system, process and employee requirements. Detailed technical requirements for transaction reporting have been issued and will continue to be released throughout Q3/Q4 2017.
Pershing has reviewed the detailed requirements set out in the delegated acts, Regulatory Technical Standards (RTS), European Securities and Markets Authority (ESMA) guidance, Financial Conduct Authority (FCA) consultation papers and the Operational and Technical Arrangements issued by the Central Bank of Ireland (CBI). The Compliance team is closely following both the national as well as European developments in order to ensure that we are compliant with the amended MIFID II regime come 3 January 2018, and are able to support our clients in the fulfilment of their own MiFID II obligations.
The general orientations of the reform are now clear therefore, over the coming months you should consider MiFID II in light of the following:
The closing date for Pershing to receive client LEIs is no later than 1 October 2017.
MiFID II is only one part of the regulatory landscape. Many of the current regulations have inter-related or overlapping objectives and impacts such as European Market Infrastructure (EMIR), Dodd-Frank, Market Abuse Regulation (MAR). Both Dodd-Frank and MiFID II contain similar requirements for OTC derivatives to be traded on exchange, originating from the G20 requirements. For EMIR, the main area of interaction between MiFID and EMIR concerns reporting obligations in respect of derivatives transactions. The scope of the MAR regime is to be extended to cover all financial instruments covered by MiFID, and to those traded on an MTF as well as a regulated market, there is an overlapping regulatory requirement which firms must adhere to.
The UK financial regulator, the Financial Conduct Authority (FCA) stated, “Firms must continue to abide by their obligations under UK law, including those derived from EU law, and continue with implementation plans for legislation that is still to come into effect”. The FCA has clarified that irrespective of Brexit, MiFID II will become law in 2018 and firms need to make sure they are prepared.