It’s looking increasingly likely that MiFID II will be delayed by a year to give financial institutions and regulators more time to prepare for reforms aimed at overhauling the way EU financial markets operate. Speaking to the European Parliament’s economic affairs (ECON) committee, Martin Merlin, a director in the European Commission’s financial services unit, said the preliminary technical view was that a delay was needed, “if we want to have a smooth and effective implementation”. No decisions on the scope and duration of the delay has been taken yet but Merlin stated that “maybe the simplest and most legally sound approach would be to delay the whole package by one year”, pushing MiFID II implementation out to 3 January 2018.
Merlin is not suggesting that the MiFID II agreement should be re-opened and picked apart by lawmakers. Instead, the provisional intention is to propose a limited legal revision on just the date of implementation — a process that would nevertheless require approval from the Parliament and Council. We believe that lawmakers are likely to back the delay. France, Germany and the UK have already called for changes in the past and their regulators have expressed concerns about tight timetables. Moreover, the chairman of ESMA, Steven Maijoor described the January 2017 timetable as “unfeasible”, given the scope of the changes needed to adopt IT systems. Particular areas of concern were around the building of transaction and position reporting systems, for which the final technical rules have yet to be published.
The move will no doubt be a relief to financial institutions, who have been struggling with MiFID II implementation on many fronts given a lack of clarity on many fundamental aspects of the new regime. The publication of over 900 pages of technical standards in late September has done little to appease market participants, instead raising considerable concerns around many issues, from the curbs on commodity positions, the extent of bond market transparency, to how far to bring the trading arms of energy companies within the scope of MiFID.
The likely delay will give firms time to catch their breath on MiFID II implementation but should not be an excuse to lose momentum on the reform drive. The market structure requirements, particularly on transparency, will require a long lead time, as will some of the conduct rules, such as those on bundling of research. Firms can now take a more strategic and measured approach to how they approach these issues but the scale and intensity of the reform drive needs to continue.
To take advantage of the extra time available to market participants, regulators will need to be more transparent about MiFID II implementation. There have been rumours about a delay in MiFID II for the past number of months with the Commission and ESMA on a number of occasions batting away suggestions that MiFID II will be delayed. Ultimately, it is not just transparency in financial markets that is needed, but also transparency in the regulatory process.