It’s been more than half a year since the Markets in Financial Instruments Directive (MiFID II) came into effect, and in that time, the legislation has fundamentally reshaped the financial landscape for EU firms, as well as non-EU firms that distribute products via affected intermediaries.
“MiFID II has brought enormous complexity to asset managers in terms of generating and processing data,” Alex Dorfmann, senior product manager at SIX, said to NICSA members during a recent #WebinarWednesday. “Increasing investor protection and transparency will remain a key focus for fund companies distributing product globally.”
Dorfmann moderated the discussion, which provided up-to-date information on the regulation, an assessment of how the industry is securing compliance with the new directive and practical advice on effectively processing financial data.
When it comes to compliance readiness, panelist Nicolas Deldime, Partner, Arendt Regulatory & Consulting, said countries are progressing at different speeds. “Investment service markets are not developed to the same extent from one country to another, and this is making a big difference in terms of appetite for compliance with MidFID II,” Deldime said, adding that variations in firm size and regulator maturity have created additional disparity.
Looking ahead, some are waiting for regulatory guidance in areas of uncertainty. Raoul Heinen, Managing Associate at Linklaters, Luxembourg, said third-country access is a hot topic in light of Brexit — especially from the perspective of the Luxembourg market, which heavily relies on delegation and outsourcing to third countries.
“The Luxembourg legislator, which is known for implementing EU directives without any major gold-plating, has made use of the option offered by MidFID II to require third-country firms to establish a Luxembourg branch to provide investment services in Luxembourg to retail and other professional clients despite criticism by the industry during the implementation process,” Heinen said. “The new requirements shed doubts on whether the way third-country firms have been servicing Luxembourg clients in the past — essentially by providing services cross border without any physical presence in Luxembourg — can be maintained going forward.”
A leaked proposal by the French delegation at the Council of the European Union seeking to scrap the third-country equivalence regime further complicates the issue. “Under the proposal, every third-country firm would have to establish a branch in the EU to provide services, regardless of whether the services are provided to retail professional clients or ECPs,” Heinen said. “The proposal also seeks to apply subset of MidFID II rules to the branch and place it under the supervision of ESMA.”
Dorfmann said other changes may be more difficult to predict, such as the potential extension of MiDFID II to UCITS management companies and AIFMS. In addition, he said “current global political developments, including the emergence of a new protectionist tendency and the difficulty of balancing investor protection while remaining competitive with the rest of the world,” will affect future regulatory decisions.
Paul Ellis, Global Head of Regulatory Product Development, HSBC Securities Services, discussed challenges and solutions around data generation, collection, and processing in a post-financial crisis regulatory environment.
“Most firms are looking to structure their data models in such a way that it becomes much more strategic and cost effective to manage that data to meet the demands of multiple regulations,” Ellis said. “That sets up the foundation for everything. If you’ve got the data right, then you can use all the new technologies that have come into play.”
Ellis said that once regulated firms get their data models into good shape, technologies like robotic processing and artificial intelligence can ease compliance burdens. “Obviously, the data layer is a critical starting point, but I don’t think it should stop firms from thinking about how they can improve the operating model over and above that,” he said.
NICSA thanks ALFI for sponsoring this webinar.
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