Coping with compliance risk in MiFID II’s climate of change
01 Oct 2019 8:45 am by Mark Dunn
A few days into MiFID II and the financial services industry in Europe—and by extension, the rest of the world—has started dealing with a daily storm of activity related to reforms that are as all-pervasive and in many ways as indistinct as climate change. How can access to timely news, legal information and business and market data help companies manage MiFID II compliance risk?
The EU’s revamped version of its seven-year-old "Markets in Financial Instruments Directive", which became effective on January 3, is a massive piece of legislation, with a still-expanding 1.7 million paragraphs of rules. Designed to increase transparency and standardise regulatory disclosure, it affects all types of asset management, advisory services and the dealing and broking of banks, non-banks and other service providers.
Given the sheer scale and complexity of the changes, regulators have indicated their intention to initially allow some leeway in compliance, which may well reflect their own state of readiness rather than a willingness to turn a blind eye.
MiFID II compliance conditions put the onus on firms of all sizes to identify their required areas of compliance and make the necessary changes to the way they conduct, record and report their business—from phone calls, face-to-face meetings and documentation, to the products they offer and how they make them available to clients.
The Financial Times reported late last year that many fund managers and corporate issuers were lagging behind in their preparations, and that, according to the European Commission, only 11 of the EU’s 28 Member States had transposed the MiFID II rules into local law. That wasn’t surprising, considering that up to 20% of the new rules were added in the second half of 2017. "Just two weeks before MiFID II’s arrival, the European Securities and Markets Authority [ESMA], the pan-European regulator, was still issuing clarifications and promising grace periods," said the FT, adding that not even ESMA was predicting a smooth start.
However, the regulators will be closely watching how MiFID II unfolds this year and are expected to intervene if they don’t like what they see. In areas such as the new directive’s trade and transaction reporting regime, non-compliance will be highly visible from day one.
Data frameworks are at the heart of MiFID II. Many firms will be updating their technology (if they haven’t already) to ensure compliance in regard to the transparency of their client database, customer portals, trading activities and post-trade reporting, and the ability to provide full, accurate disclosure of costs and charges. But to meet MiFID II, financial institutions also need to make use of market and referential data—and the volume, type and accessibility of this data will change and increase.
Content integration can empower financial services organisations by complementing their own aggregated data and existing tools with credible news and business content. This type of content offers value, not only for supporting compliance strategies, but for predictive modelling and machine learning applications as well. Likewise, ongoing monitoring of global news, legal information, and business and market data can help organisations spot potential risks sooner and respond proactively. What data do you need to address MiFID II compliance, conduct analysis and execute trades that will keep you in good standing with regulators and ahead of your competition?
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