Since the summer, over 700 MiFID II/MiFIR responses have been submitted, the FCA has run a conference crying for action and JWG is preparing to run its eighth deep dive into implementation requirements.
As the FCA have advised, the future of EU trading is in the balance and work should start now – not because we already know what it should look like, but simply because there will not be enough time otherwise.
So where are we and what is the ‘so what’ for your programme?
Where are we?
Approximately 5 weeks from now, we will have another massive consultation on our doorstep – with responses due at the end of February. Indeed, there are 104 paragraphs of the level 1 text which are subject to, as yet unpublished, technical standards.
Even worse, unlike some regulatory deadlines, there is little hope of pushing the 2017 date back. Even if we delay the consultation, we will just have to do more work in less time.
In a nutshell, given the colossal workload created for firms and their suppliers, we don’t have much time. According to a countdown clock, there are precisely 536 working days between now and the ‘hard stop’ 3 Jan 2017 implementation date … and that’s if you don’t take any holiday before then.
To get something done ‘right’, you look for a ‘standard’ way of doing it. The problem with standards is that everyone thinks about them slightly differently. From heraldry to measurement to trading to identifying bits of data, there are slightly different interpretations about how to align common practices.
The shape of standards
The point is that MiFID II will require alignment of thousands of data points and practices, yet there is no agreed regulatory policy, process or data architecture in place. Every firm will operate in their own way with many different systems. So what do we mean by standards?
First off, we do NOT mean the way the business rules are interpreted. MiFID lawmakers and the industry trade associations are doing a very good job working out what the politicians meant, with some degree of specificity. The resolution of issues involving third countries, corporate governance requirements and research all require much more clarification about ‘what’ is meant by the texts.
This is a challenge for the middle and back-offices. Firstly understand the ‘what’ then quickly work out ‘how’ it is going to be done. But even a small ‘what’ (the identification of a trader) could lead to a massive ‘how’ (brand new reference data requirements).
As we move away from making sure we have an understanding about what the paragraph says towards thinking “we have to do ‘this’ to meet the objective of that paragraph”, we need standards that describe what the acceptable ways of getting to an outcome could be.
A brave man once said, “standards are great things to talk about because there are so many to choose from”. MiFID II will push this to the limits. There is no way to define a single ‘how’, so, in most cases, there will need to be serious discussion of the acceptable methods for meeting requirements.
For example, one might identify traders with method A, B or C. These methods could involve different codes, business processes and vendors, whatever – let’s just presume they are thought through.
Your management wants to know which one is right. Wouldn’t you rather have a discussion, starting with the wisdom of the crowd about what is possible? Wouldn’t they want to have the security of knowing that the list of options was a) fit for purpose, b) relatively complete and c) likely to be achievable? Wouldn’t you both want to know that your suppliers could deliver the solution you wanted and that the regulator would find that acceptable? This is where regulatory implementation standards come in.
Standards are a key part of the MiFID II puzzle, but not the only one. Perhaps just as important to getting the work done by the deadline, is having the right approach, at the right time.
Unlike the last round, locking up in smoke-filled rooms and deciding on a practice won’t be an option. Now there are hundreds of dependencies on EU authorities, systems vendors, data vendors and market infrastructure. We will focus on how to do this in our next article.
Whatever corner of the market you hail from, it behoves you to get your implementation teams engaged and get access to the latest documents, analysis and implementation standards.
We are hosting two further MiFID II workshops before the end of the year. On 14 November we will focus on the reporting workstream, and on 4 December we will focus on the systems and controls workstream. If you are interested in being involved, call the JWG team on +442078708004 or email MiFIDII@jwg-it.eu