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Understanding the opportunities and threats posed by significant market reforms
MiFID II: Getting it right the first time Optimising and managing regulatory change
www.pwc.com/mifid
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Are you getting ready yet?
Why is MiFID II so important?
MiFID II will drive fundamental changes in the European securities markets, in parallel with developments underway in the United States and globally.
MiFID II, while addressing the problems of data and market fragmentation created by the original MiFID Directive, takes on board many lessons from the financial crisis. Investor protection measures will be substantially improved. All markets will become much more transparent and all forms of trading venue subject to regulation. The new rules take account of recent technology-driven market changes and look to ‘future-proof’ the regime. Most market participants will face enhanced supervision and reporting requirements with exemptions from the regime significantly reduced. And even exempted participants will not be totally immune to all the new rules.
While MiFID transparency requirements focussed primarily on shares, MiFID II extends these to all forms of ‘equity-like’ instruments and introduces analogous requirements for fixed income and derivative products.
It will be supplemented and reinforced by other regulatory changes, such as the regulations on OTC, central counterparties, and trade repositories (EMIR) and on central securities depositories (CSDR), together with revisions of the Market Abuse Directive. Its investor protection measures are also complemented by a number of other legislative changes.
This is no compliance exercise – it will change your business and the markets
The revised Markets in Financial Instruments regime (MiFID II) will be burdensome for all those operating in the European securities markets but also presents significant opportunities. With over two years to prepare and many details still not in place, the temptation is to wait. But this is ill-advised. Waiting may lose you first mover advantage in key strategic areas. Waiting will also significantly increase your costs.
The new regime will impact all areas of your business. It warrants a major change programme.
However, MiFID II is no isolated change. By addressing MiFID II as a standalone compliance exercise, you’ll get sub-optimal outcomes, including sub-optimal compliance. It should be put into context with all the other key regulatory changes in the European Union, focussing on investor protection, market integrity and market infrastructure.
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Figure 1: Extensive impact on your business
How will MiFID II impact your business?
MiFID II will have a significant impact across the whole securities value chain, from front-office sales and trading, through to back-office reporting and all points in between. The way you interact with your clients and other market participants will change radically.
Who will be impacted?
Anyone operating in the securities markets – in whatever capacity – will be affected. The impact in terms of time, effort and associated costs will vary but no-one escapes entirely. The list includes:
• Broker dealers (sales and trading);
• Investment banks and corporate finance houses;
• Market infrastructure providers (e.g. trading platforms, data aggregators/disseminators);
• Buy-side firms (institutional investors) and other market users (including SMEs);
• Wealth management firms;
• Custodians; and
• Energy and other commodities players.
Business strategy
Governance arrangements
Processes, policies and procedures
Systems/technology
Trading facilities Algorithmic trading and HFT
Execution-only trading
Crossing systems, dark pools
Market data access and provision
Equity (and equity-like) business
Non-equity business
Financial and commodity derivatives
Trade internalisation
SME and retail business
Client take-on/categorisation
Algorithmic trading, HFT, DEA
Independent vs non-independent
advice
Suitability/appropriateness tests
Underwriting and placing
Client assets Pre- and post-trade transparency
Portfolio management
Best execution Structured deposits
Operation of MTFs/OTFs
Transaction reporting Conflicts of interest/inducements
Client information/reporting
OTC derivatives
Systematic internalisation
Execution-only business
Target markets/product approval
Distribution channels
Emissions trading
Transaction reporting
Systems architecture for MTFs/OTFs
Market access
Position limits
Client take-on/ reporting
Algorithmic trading
OTC derivatives trading Pre and post trade transparency
Telephone order recording
Record-keeping
Management body composition/responsibilities
Compliance, risk, internal audit & internal controls
Target markets/product approval & oversight
Shareholder value/market data
HR policies/practices eg. remuneration/whistleblowing
Internal reporting/escalation Regulatory reporting/relations
Investment policies
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Source: PwC
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What are the MiFID II timelines?
The final text was published in the Official Journal on 12 June 2014 and entered into force on 2 July 2014. The regime – both the Directive and the Regulation – will apply from 3 January 2017. Member States will have 2 years to transpose the Directive into national law (the Regulation is automatically binding on Member States but there may still be some adjustments required at the national level to ensure that it is implemented properly). All level 2 measures – over 100 of them – need to be drafted and endorsed, as appropriate, ideally within 2 years (i.e. at least six months before the application date).
Figure 2: MiFID II Timeline
*Possibility of extension
** Not all guidelines have to be prepared by 3 January 2016. ESMA will supplement its guidelines with Q&A.
Source: PwC
2014 2015 2016 2017
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
LEV
EL
1
Political agreement 14/1/2014
• EP vote 15/4/2014 • Council adoption 13/05/2014 • OJ publication (12/06/2014)
EC mandate 23/4/2014
Submission: 3 January 2015
Publication in OJ at the latest by 3 January 2016
3 July 2016
Ap
plicatio
n:
3 January 2017
Submission: 3 July 2015
Submission: 3 January 2016
Finalisation: 3 January 2016**
LEV
EL
2 LE
VE
L 3
* Possibility of extension ** Not all guidelines have to be prepared by 2 January 2016. ESMA will supplement its
guidelines with Q&A.
Figure 2: MiFID II Timeline
ESMA technical advice
ESMA draft regulatory technical standards
ESMA draft implementing technical standards
ESMA prepares guidelines
EC endorses*
National transposition
EC endorses*
EC prepares delegated acts No objection period*
No objection period*
Entry into force: 2 July 2014
Discussion paper 22/5/2014 -1/8/2014
Discussion paper 22/5/2014 -1/8/2014
Consultation paper
Consultation paper?
Transposition period Application period
Consultation paper 22/5/2014 -1/8/2014
Source: PwC
EC adopts 3 July 2015
Endorsement: 3 October 2015
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What should you be doing today?
Although we have to wait for the detailed implementing measures, with the adoption of the Level 1 text and the publication of the ESMA consultation and discussion papers, the general orientations of the reform are clear and you can start to get to grips with it now.
Over the coming months, you should consider MiFID II in light of the following:
Strategy: identify any business threats and strategic opportunities
Revenue impacts: determine revenue/business structure impacts.
Governance: establish an internal framework to co-ordinate initial activity and get the right people involved.
High level planning: gauge key timings and ‘must do now’ activities plus preliminary IT budgeting.
Regulatory priority: look for inter-dependencies with other regulatory changes to prioritise key work-streams and identify implementation efficiencies.
Public policy: link business impact analyses into public/lobbying policy on implementing measures.
Education: deliver knowledge of the changing landscape early across your organisation.
Figure 3: Two key phases to MiFID II implementation
Source: PwC
Strategy/competition/business models
Client categorisation/target markets
Capital markets operations/technology
Market and supervisory reporting
Product design & manufacture
Distribution strategies
Management Board/Compliance
Conflicts of interest
Client information reporting
Record-keeping
Regulatory update
Operations/technology
Project management
Proj
ect a
ppro
ach
Analyse and Design ImplementationPhase I Phase II
Phase I
Phase 3:
Phase 2a: Phase 2b:
Identification of regulatory changes
introduced by MiFID II/MiFIR
Identification of existing regulatory
gaps
Design appropriate implementation
measures
Identifying possible opportunities arising
from new requirements
Define technical requirements
Adapt processes and systems
Go-live
Testing
Deliver training
Start
MiFID II
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PwC can help
We can mobilise the broad range of expertise that you are going to need to tackle MiFID II, and can support you along its full implementation spectrum, throughout Europe and more widely.
We have wide experience with MiFID, having helped a range of financial firms implement the original regime, and have worked on subsequent ‘upgrades’ instigated nationally or through the introduction of ESMA guidelines.
We are well-versed in conducting major, geographically diverse, change programmes. We can also provide you with access to tried and tested methodologies and tools that will help you:
• Fully analyse the changes;
• Identify interdependencies with other key regulations;
• Assess the impact of the rules on your strategic priorities and operations;
• Capture the strategic opportunities and minimise any resultant threats;
• Implement enhanced and compliant processes and procedures;
• Enhance your business processes, technological systems and infrastructure; and
• Deliver sustainable change.
For more information on the MiFID II please visit: www.pwc.com/mifid
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MiFID II contacts
Ullrich HartmannPartner+49 17526 [email protected]
Wendy ReedDirector+32 2710 [email protected]
Folker TreptePartner+49 89579 [email protected]
Pan-European
Enrique Fernandez AlbarracinPartner+34 91568 [email protected]
Spain
Veronica SommerfeldDirector+46 10 [email protected]
Sweden
Christoph ObermairDirector+43 150188 [email protected]
Austria
Olivier CarréPartner+35 249484 84174 [email protected]
Emmanuelle HenniauxPartner+35 249484 [email protected]
Luxembourg
Jochen BlaffertPartner+31 88792 [email protected]
Jeroen WillemsteinPartner+31 88792 [email protected]
Netherlands
Clint SookermanyPartner+47 9526 [email protected]
Norway
Martina RangolSenior Manager+49 69958 [email protected]
Daniel WildhirtSenior Manager+49 699585 [email protected]
Germany
Fiona LehaneDirector+35 387121 [email protected]
Garvan O’NeillPartner+ 35 31792 [email protected]
Ireland
Fabiano QuadrelliPartner+39 02667 [email protected]
ItalyJean-François BourmanneDirector+32 2710 [email protected]
Marleen MoutonLaw Square|Geassocieerd-Advocaat+32 2710 4735 [email protected]
Belgium
George LambrouPartner+35 72255 [email protected]
Maria AthienitouSenior Manager+35 72255 [email protected]
Cyprus
Christiana Suhr BrunnerPartner+41 58792 [email protected]
Guenther DobrauzDirector +41 58792 1497 [email protected]
Switzerland
Andrea WintermantelPartner+44 77 3333 3944andrea.wintermantel.uk.pwc.com
Laura CoxPartner+44 20 7212 1579 [email protected]
Che S SidaniusDirector+44 7808 [email protected]
Simon R AndrewsSenior Manager+44 20 7212 [email protected]
UK
Graham O’ConnellPartner +1 64647 12547 [email protected]
US
Cláudia Parente GoncalvesSenior Manager+35 121359 [email protected]
Portugal
Ludivine GimetSenior Manager+33 15657 [email protected]
Marc RipaultDirector+ 33 15657 [email protected]
France
Ludivine GimetSenior Manager+33 15657 [email protected]
Nicolas MontillotPartner+33 15657 [email protected]
www.pwc.com/mifidThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2014 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
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