If the audience polls at our recent MiFID II Implementation Summit are anything to go by, firms are struggling to achieve a seamless transition to the new transparency directive.
A great deal of uncertainty still exists around MiFID II — particularly in relation to reporting obligations — as firms look for further guidance on how they can confidently enter this new regulation phase.
Our Implementation Summit in London helped address some of the challenges currently being faced by organizations in the run-up to the MiFID II compliance deadline of 3 January, 2018.
While expert speakers discussed the processes, systems and technologies that can be used to overcome the hurdles, polling questions allowed us to discover where companies’ strengths and weaknesses lie in terms of MiFID II.
Lack of confidence
One such question — “How confident are you that your organization will have the data sources in place to comply with MiFID II?” — showed that 60% of participants were ‘unsure’ or ‘not ready’.
The next polling question — “How confident are you that your firm will be compliant with the transparency regime by 3 January?” — was answered with a startling 84% of attendees stating “unsure” or “not confident”.
We then asked participants: “Which element of the transparency regime do you feel will be most challenging?”
The most popular answer — at 57% — was the ‘technical implementation of reporting obligations’. The next biggest concern was ‘the availability of reference data to determine waivers and deferrals’, being answered by 26% of participants.
Guest speaker Alex McDonald, CEO of the Wholesale Market Brokers’ Association, sought to address the technical implementation question during the summit.
In an interview available as a podcast, he highlighted the need for a common understanding on where a trade will have to be applied in the transaction reporting framework.
He said: “This, therefore, needs connectivity between clients and venues, and systems that are able to allow the required transparency to be reported on both parties because MiFID II doesn’t simply apply to venues, but also to clients.”
On a positive note. he gave his views on the benefits of MiFID II implementation.
McDonald said: “As a trade association representing the MiFID II venues, the benefits that we see coming from MiFID II are that the open access and level playing field agendas get promulgated forward.
“There should be more data, and less intellectual rights, which have hitherto perhaps divided markets, and created silos of liquidity.”
Discussing the specific elements of the MiFID II implementation, we asked participants: “At your organization, which elements of required MiFID II data are proving difficult to source?”
A combined two-thirds of respondents identified ‘standard data such as LEI, CFI and MIC codes’ and ‘market data’ as the biggest difficulties.
Following on from that, ‘ISINs for OTC derivatives’ and ‘personal data’ were seen as the next most difficult to source data.
Nick Philpott, Director in E-Commerce at Standard Chartered Bank, agrees that the most challenging part of implementation certainly involves data.
He said: “At its heart, MiFID II is very much a data exercise.
“You’ve got instrument data, the ISIN for OTC derivatives and you’ve got client data, so you’ve got to make sure that your method of classifications is correct.”
Despite the challenge of sourcing the correct data, he agreed that it was important to focus on the positives of the new era.
In his interview, which is available as a podcast, Philpott added: “As we gather information and gather data and make sense of it, we’ll learn a lot more about our clients which ultimately will allow us and the market to serve them much better than ever before.’
While we will work with customers on providing a seamless transition come 3 January, we also asked participants: “What ancillary benefits does your organisation expect to gain from MiFID II compliance?”
The vast majority of respondents answered ‘an improved internal culture to risk management’.
We look forward to helping our customers navigate this period of change, and the positive culture of risk management throughout financial organizations.