Even though the delay of the Markets in Financial Instruments Direction, MiFID II, will have been a relief to a number of investment firms that had waited for the release of the European Securities and Markets Authority’s regulation, it doesn’t hide the fact that it will come into practice. The impact that MiFID II will have on businesses is constantly changing and it is imperative to keep a finger on the pulse.
The launch of MiFID II in January 2018 is set to have a sweeping effect on asset management firms in particular who are responsible for providing transaction reports. Despite a couple of exceptions, these firms will no longer be able to rely on brokers for transaction reporting.
However, new technologies will be implemented to help businesses to meet their MiFID II reporting needs.
What is MiFID and MiFID II?
The first Markets in Financial Instruments Directive (MiFID) resulted in a major change to cash equity markets. Its best intentions were to remove barriers to make cross-borders trades and exchanges within Europe safer and more transparent. MiFID II regulates firms that provide services to clients, such as collective investment schemes or derivatives, and this also includes trading of location instruments. The legislation has a number of core objectives, including:
- To improve investor protection
- Alignment of regulation across certain areas within the EU
- To increase competition between financial markets
- To introduce reinforced supervisory powers
So essentially, MiFID II will introduce a set of requirements regarding communication, disclosure and transparency to benefit investors.
What impact will MiFID II have on business?
There are three main challenges ahead of MiFID II:
To Improve the market
MiFID II improves the competitive environment for financial instrument trading. This is achieved by establishing access in the market for trading platforms to expand. New rules regarding high-frequency trading will also be put into practice. It is likely for this to involve strict requirements for both investment firms and trading venues. Investment firms will also need to be aware of what types of businesses they are and are not in, and those that they are interested in joining.
To Increase Transparency
When MiFID II is introduced, more requirements will need to be filled when reporting commodity derivatives trading to attain transparency. To ensure success, all trading information must be recorded before and after the transaction for a larger number of financial instruments, when compared to MiFID, to provide increased accountability. Certain shares will be required to be travel-use regulated platforms, as opposed to over the counter, making the process more secure and private.
To provide investment protection
MiFID II focuses on improving investor protection to extend the introduction of robust controls, to prevent conflicts of interest. This will aid in encouraging transparency between pre-execution and post-execution, and enables fees payable in respect of investment advice to be banned. The introduction of new requirements and implementing existing ones will strengthen the protection of investors.