On 17 June 2016 the European Council adopted the Regulation and Directive enacting the one year delay to the implementation date for MiFID II and MiFIR. This does not mean that the problems with it, and the difficulties of adjusting to it, are instantly deferred, and certainly not resolved. Plans by MiFID firms, and others affected by the implementation of MiFID/MiFIR should continue apace, alongside development of the work on the necessary RTS and ITS by ESMA and work on local implementation by national regulators.
Given the Brexit vote, it may seem odd to plough full steam ahead with such updates but, as you might imagine, they were already in process, and it seems probable that the exit discussions will take some time such that asset managers still need to plan on the basis of current initiatives being implemented.
An updated timeline is provided so you can see how things are currently expected to progress.
The new deadline for transposition by Member States is 3 July 2017. The date of application for MiFID II and MiFIR is now set for 3 January 2018. Whilst the main challenge which caused the delay has been the need to establish a data system to cover the wider range of financial instruments to match the wider scope of MiFID II, the implementation delay applies to all aspects of MiFID II and MiFIR.
The "quick fix" amending Directive (P8_TA-PROV(2016)0243) and Regulation (P8_TA-PROV(2016)0244) inserting these dates in the Level 1 texts have now been agreed with the European Parliament (on 2 May 2016) and now adopted by the Council on 17 June.
In the UK, we are now awaiting the FCA's second and third consultation papers, expected late July and late September respectively. In particular, for those interested in the investment protection issues, the September one which will cover the COBs issues is awaited with keen interest.
Fieldfisher's MiFID II text tracker
ESMA's focus is on developing its Level 2 and 3 work. Affected firms should focus on understanding the implications of the detailed level 2 and 3 work and how all of this work should fit together. We hope that our MiFID II text tracker will be a useful tool for MiFID firms and other firms affected by the implementation of MiFID II and MiFIR in developing their relevant workstreams.
We will be updating our MiFID II text tracker from time to time as the various RTS and ITS are finalised. Please check our website for the most recent version.
MiFID II's extensive reach
The two key objectives of the MiFID II / MiFIR initiative are to strengthen financial markets regulation and investor protection.
To state the obvious, MiFID II applies to MiFID firms. It is important however to note that various out of scope firms will be much affected, such as UCITS ManCos, AIFMs and insurance companies offering life and pensions insurance products.
UK firms will be very familiar with the current scope of MiFID I. MiFID II builds upon MiFID I quite considerably. In respect of instruments, it adds a new category of structured deposits. In respect of the approach to regulation, particular new initiatives to focus on include:
- restricting execution only business further
- banning inducements
- deeming all non-UCITS and structured UCITS complex
- introducing product design constraints
- introducing product intervention powers
Looking at some of these MiFID II developments UK firms' legal and compliance teams will fully appreciate that, in some areas, there are already numerous similar provisions already in place because UK legislation has been more extensive in its requirements and regulatory powers than MiFID I required. There is already much of the work covered by MiFID II in place in the UK, for example the 2007 Guide on Responsibilities of Product Manufacturers and Distributers regarding product design issues, and the 2013 Statement regarding the use of product intervention powers. We have RDR which has gone a long way on banning commissions and preventing distributor product bias. Nonetheless there will be new ways required for complying with the MiFID II constraints for which adaptations will need to be made. Although not everything will be new, the detail will be slightly different in a number of areas.
Of course the UK regulatory position is itself changing. The UK FCA, focusing primarily on its investor protection and promoting competition objectives, is following a number of different initiatives on its own account in relation to its Competition Review and its Financial Advice and Markets Review. One relevant outcome of this is for example one FAMR Final Report March 2016 recommendation that the UK's currently wider investment advice Article 53 Regulated Activity Order activity is likely to be restricted back to the narrower MiFID investment advice definition. This would, for once, mean that the UK is removing part of its gold plating to conform to the expected European position.
Devising your necessary workstreams
As the various RTS and ITS are finalised, we will be issuing updates on specific topics.
We expect clients to develop workstreams on the particular topics which will be of relevance to your particular businesses. We look forward to helping you develop these, and more generally consider with you how to deal with European challenges as the Brexit debate progresses.