It says a lot about the complexity of regulatory compliance that a major new directive like MiFiD ii can be primed and ready to go on the books for over three and a half years, but many financial services firms were still unprepared for its eventual introduction.
In a bid to quell rising panic on the eve of the MiFiD ii January 2018 deadline, the FCA’s Head of Enforcement gave a speech reassuring those who weren’t yet in shape that – not to worry – they won’t be doing much ‘enforcing’ of legal penalties. But that only applies as long as the firm in question could prove it has made ‘a genuine attempt’ to meet the standard, in which case he and his henchmen promise to leave you alone. Presumably, if you’ve (still) done nothing much to get ready for MiFiD ii then you have total license to panic as much as necessary.
Because, let’s make no bones about it, panicking remains very much on the agenda, and was in evidence in many quarters during the run-up to the deadline, judging by a series of press reports around the close of last year. According to Bloomberg, the head of currency trading at Deutsche Asset Management warned it could ruin some people’s Christmases. US-headquartered finance firms operating in London seem particularly ‘ill-prepared’, claimed UBS analysts.
One correspondent, from one of the City’s top fintech outfits, told of Christmas being cancelled altogether for one unfortunate soul whose firm left it too late to undertake the necessary compliance measures in time.
A perfect storm to battle against
There are doubtless still some firms working towards their MiFiD ii compliance obligations, despite the fact that the deadline has passed. Their challenge isn’t helped by MiFiD ii’s notoriously elaborate requirements and the need to call in highly-qualified legal expertise to make sense of it all; legal expertise that has been decidedly thin on the ground as demand for MiFiD ii legal gurus has increasingly outpaced supply.
Add the fact that many financial firms are perilously short-staffed to face such challenges, having streamlined headcount in the wake of the 2008/9 financial crisis, and you have a perfect storm for finding it difficult to reach any new compliance measure in time.
Perhaps most gloomily of all is the survey stat from trading network Liquidnet that found, with just weeks to go before the deadline, only 6% of asset managers were ready for MiFiD ii. While based on a small sample (only 32 UK-based asset managers were interviewed), the findings are very troubling indeed, although it would be of greater interest to understand how many had made ‘a genuine attempt’ to be ready versus those who were flouting key obligations by doing little or nothing.
Making progress in a headwind
Achieving MiFiD ii compliance is a tough challenge, but it really isn’t in the FCA’s interests to see any firms fail. The regulator has been consistent in its language about ‘working with’ firms to achieve the required standard, offering detailed guidance for executive and operational management; not just lawyers and technologists. The message remains: it isn’t too late to finish, though it is too late to begin.
Working with the FCA to understand and action the foundational aspects of MiFiD ii has been crucial, but so has relying on trusted partners to step up to the plate in terms of technology delivery so that ‘best execution’ is based upon the solid foundations of reliable, always-on IT and connectivity. This is especially important as financial firms continue to embrace cloud-based infrastructure and services; migrating to hybrid cloud environments for added agility, budgetary efficiency and application performance – all of which necessitate constant 24/7 uptime and strictly observed SLAs.
Luminet has charted the introduction of MiFiD through its first incarnation in 2007 through the latest evolution of MiFiD ii and MiFiR. While not professing to be experts on the specific legal compliance requirements, our partnership with many of London’s leading finance and banking institutions has strengthened connectivity and cloud implementations to provide the vital underpinnings for effective governance. Ultimately, this helps our customers remain connected, secure, scalable and resilient at all times – all essential to achieving MiFiD compliance.
Read more about Luminet’s finance sector specialism here.