With the MiFID II compliance deadline less than a month away, are financial institutions ready? We look at potential outstanding issues and how regulators might respond after 3 January.
A quick review of the market suggests the majority of firms within the scope of MiFID II will be ready.
However, many will only just make the deadline, and most are already looking at how to improve MiFID II compliance processes through 2018 and, perhaps, beyond.
In the short term, the focus for many firms is on ensuring they have the reference data required for transaction and trade reporting. This is a fundamental element of MiFID II that will be scrutinized by regulators.
But it cannot be put to the ultimate test until the regulation goes live and data flows from Approved Publication Arrangements, the Derivatives Service Bureau, ESMA’s Financial Instruments Reference Data System, and Approved Reporting Mechanisms.
Watch video — MiFID II Market Readiness Report – Will the market be ready?
MiFID II uncertainty
Also coming late to the party are some trading venues, particularly recently established multilateral trading facilities (MTFs) and organized trading facilities (OTFs) that are completing their own compliance.
The late arrival of these venues means complete datasets for MiFID II compliance may not be available on 3 January, leaving firms to continue onboarding venues and data as soon as they become operational.
Watch video — How can you turn MiFID II compliance from challenge to opportunity?
The MiFID II mandate on the use of Legal Entity Identifiers (LEI) to identify clients, counterparties and issuers, and the industry mantra of No LEI, No Trade, also remain a challenge for many firms, although solutions such as Thomson Reuters LEI Profiling Service can ease the burden.
With so much at stake, regulators recognize the MiFID II response won’t be perfect at go-live and are expected to take a proportionate and pragmatic view of compliance in the first few months of next year.
Firms with ongoing compliance programs and sound plans for implementation should find favor. Less so, firms with no, or inadequate, plans.
While compliance complications will spill over into 2018, there is no doubt that most firms making the final sprint to the MiFID II deadline will cross the finishing line.
Many of these firms are also beginning to consider a long-term course that will help them take advantage of the regulation’s changes to market structure, operational models and behavior in Europe’s capital markets.