MiFID II implementation delay

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The Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) are due to come into effect on 3 January 2017. However, it now seems that implementation may be delayed by a year.

The Chair of the European Securities and Markets Authority (ESMA) gave a speech to the European Parliament’s Economic and Monetary Affairs Committee on 10 November 2015 outlining the challenges involved in meeting the current implementation date. In particular:

  • It will be “well into 2016” before certain regulatory technical standards (RTSs) are finalised and work cannot begin on the more complex IT projects until then. The IT projects are estimated to take 12 months (and, of course, there is a risk that they may overrun).
  • The six month period between the transposition deadline of 3 July 2016 and the implementation date is extremely tight in view of the volume of work involved for ESMA and national authorities in assessing pre-trade transparency waivers and proposals for setting aside position limits.
  • ESMA has asked the European Commission (Commission) to consider whether a delay in transposition (with an emphasis on transparency, transaction and position reporting) would be possible.

The European Parliament responded on 27 November 2015, saying that it was prepared to accept a one-year delay to the entry into force of MiFID II, provided that the Commission:

  • adopts the level 2 measures required under MiFID II as soon as possible; and
  • reports regularly to the European Parliament (Parliament) on the progress towards implementation, including timelines and key milestones. Parliament proposed a meeting between the Commission and the Parliamentary negotiating team in December 2015 before the Commission adopts the level 2 measures.

What the delay will entail is not currently clear. The minutes of the Financial Conduct Authority’s (FCA) MiFID II implementation roundtable meeting held on 6 January 2016 expressed the belief that clarity would emerge very shortly. The FCA noted that there appears to be continuing proactive engagement from large firms in their MiFID II preparations notwithstanding the public discussions about delay, but there was nonetheless some evidence that larger firms might be falling back.

In a separate development, on 23 December 2015 ESMA published a consultation paper seeking opinion on its draft guidance on the application of RTS 22, 23, 24 and 25 concerning transaction reporting, reference data, order record keeping and clock synchronisation, as required by MiFID II.

The likely delay in the implementation of MiFID II should occasion no particular surprise. However, it would be unwise for firms to sit back in the knowledge that the implementation timeline has now slipped. The breadth of the new measures means that it is a challenge for firms even to determine which aspects apply to them and what changes they need to make to give effect to them. There is still a lot to deal with in terms of compliance, even with a year’s delay, and firms who have established a timetable for compliance are advised to keep up momentum, while those who have yet to start are encouraged to do so in order to be properly prepared. The FCA is expected to consult on issues including conduct, client assets, enforcement, commodities and the definition of a financial instrument in April 2016, although that may be delayed depending on when the level two measures are published.

Please contact Andrew Northage or your usual Walker Morris contact if you would like to discuss any of these issues.