Greater transparency in financial trading
MiFID II After seven years of discussions resulting in over 2,000 pages of European legislation and guidance, MiFID II will take effect on 3 January 2018.
MiFID II will mark a significant evolution in financial services for retail and wholesale consumers in the UK and Europe.
MiFID II is intended to produce a safer, more transparent and more responsible financial system, facilitate competition and help to restore investor confidence in the wake of the financial crisis. These objectives are all priority areas for us at the FCA, as reflected in our Mission and Business Plan. We believe that the successful implementation of MiFID II will help us to achieve good outcomes for UK financial markets, which support consumers and the wider economy.
MiFID II affects many aspects of the regulatory regime for both retail and wholesale investment business.
Several of the conduct changes in MiFID II go with the grain of work we have already been doing in the UK. We have already sought to effect change in the way that firms incentivise their sales staff, control the manufacturing and distribution of financial products and to stop product providers determining the remuneration of financial advisers. In these areas and others, UK firms should already be well on the way to meeting the MiFID II standards.
In other areas there is more radical change. There is a big agenda of change in the structure and rules for the trading of financial instruments. This includes restrictions on the ‘dark’ trading of shares, greater transparency in the trading of bonds and the setting of position limits for all commodity derivatives contracts traded on trading venues. There is a package of measures to increase resilience in markets characterised by widespread use of algorithms. Investment managers, sell-side firms and trading venues are all updating their systems and the way they do business to adapt to these changes.
We are investing in our systems to prepare for the new transaction reporting regime. The reports we will receive on a daily basis will cover a broader range of financial instruments and will significantly enhance our ability to detect and prosecute the most harmful forms of market abuse.
Inevitably, given the breadth and depth of MiFID II, firms have had many questions about the legislation. We have contributed to European work on the interpretation of the legislation. Also we have spent a lot of time talking to firms individually and collectively about the legislation to help them understand their obligations.
Firms are putting in significant work and resources to achieve compliance both individually and through industry associations. We commend the efforts they are making. Our focus is on ensuring firms have put the work into implementation in a thoughtful manner and that they have the foundations in place for day one. For example, the right regulatory permissions to operate and the ability to fulfil transaction reporting requirements, including making sure they and their clients have Legal Entity Identifiers (LEIs). We will not be seeking to catch them out on the fine detail of what they have done.
The full effect of MiFID II will take its time to work through. Change will continue after 3 January 2018 as different parts of the legislation take their full effect and firms recalibrate what they have done in response to changes in the wider market.
No doubt, we will all learn from the experience and identify ways to improve the operation of MiFID II. The FCA is fully committed to working with firms to achieve sensible outcomes.