With the European Commission’s recent announcement that the implementation of the Markets in Financial Instruments Directive (MiFID II) and new Markets in Financial Investment Regulation (MiFIR) is being delayed by 12 months to 3 January 2018, it is tempting for many firms to down their tools and lose momentum.
The announcement will have come as a relief to the many investment firms that waited until the European Securities and Markets Authority’s (ESMA) Level 2 technical standards were published in September 2015 to begin their key projects – which left them with too little time to safely deliver major technology projects by January 2017.
However, firms must not become complacent. As Steven Maijoor, chair of ESMA, recently stated: “A 12-month delay to the introduction of MiFID II still may not give asset managers enough time to adapt to the directive’s requirements.” It is therefore essential for organisations to seize this opportunity to think more strategically about the approach they are taking – the result will be better solutions and reduced compliance costs.
Drawing on our in-depth understanding of MiFID II, our work with regulators and our experience in tackling similar delays with Solvency II – which saw our clients saving 30%-60% of their originally estimated compliance costs – we have outlined the steps organisations must follow if they are to succeed.
Revalidate the assumptions you have made
A large proportion of firms have already conducted some level of impact assessment, set up a programme and begun key projects. Our first recommended step is to revalidate your initial impact assessment and assumptions – bringing your assessment up to date with the most recent version of the regulations and the latest industry thinking. Any gaps or misunderstandings identified at this point will be relatively inexpensive to tackle; however, fixing mistakes in 12 to 15 months’ time will be extremely costly and distract key resources at a critical time.
Seek more strategic approaches to requirements
In their attempt to achieve the original timelines, many firms were forced to consider more short-term and tactical solutions. However, following the technical standards being published in September 2015, a wide range of providers announced their solutions – from established exchanges to FinTechs. We have found many of the firms we are working with are focusing too strongly on in-house solutions, but it is important to seek long-term strategic solutions to the regulatory requirements and consider all available options. Moving to a strategic solution from the outset will save significant costs in the long run and avoid any potential operational risks and costs further down the line.
Re-align business strategies
Although the industry is in agreement that the impacts of MiFID II will be felt beyond technology and operations teams, our conversations with clients reveal only a minority of firms have taken the time to fully assess how their business strategies will be affected. With a 12 month delay, firms have been presented with a golden opportunity to address this issue.
However, it is important to take a holistic approach so that the regulatory impacts are considered alongside the many other factors driving business strategy. As revenues decline and margins are squeezed, firms need to be clear on their strengths and be selective about the products they offer and the markets they operate in. Regulators, for instance, are requiring firms to become more customer-centric and the market itself is driving firms to offer innovative ways to interact with their customers. In combination with other drivers, regulations may tip the balance in favour of more radical and strategic approaches.
With a 12 month delay to MiFID II/MiFIR, firms have been presented with a unique opportunity to reassess their position. Those that fail to do this will experience a feeling of déjà vu in 2017 and find themselves left out of pocket and lagging behind the competition.
You can read more about how MiFID II will impact your business here.
Find out more about the author of this article, Patrick Scott.