At a recent event attended by NEX Regulatory Reporting, the FCA shed some light on various issues and concerns surrounding MiFID II.
The regulator made it clear that one of the most important elements of MIFID II was ensuring effective transaction reporting. Regardless of Brexit, the FCA will continue to consider accurate and comprehensive reporting vital for it to meet its’ regulatory objectives. Although it recognises that precise clarity is not always possible in relation to requirements, firms should consider the spirit of the regulation when considering an appropriate approach.
In the event of subsequent failings, the FCA will assess a firms’ decision process around the approach adopted and therefore advise, if the firm could clearly demonstrate consideration was applied in recognition of regulatory targets, that this would make a reasonable defence around a resulting failure. From a compliance perspective, this is consistent with today’s approach and I would advise firms where there is uncertainty, they should document the decision process/ logic against regulatory expectations. This can then be demonstrated in the event of an issue arising and any potential review by the regulator.
At the end of March/ beginning of April, the FCA will publish a MIFID II Policy Statement in respect of implementation. The statement will include the regulator’s approach towards transaction reporting in respect of portfolio managers as well as an implementation approach around data service providers. The FCA intend to publish a further implementation Policy Statement in June.
It was confirmed that ESMA is continuing to work on market structure, reference data, trading venues and systematic internaliser responsibilities and further feedback will be provided around these issues. The FCA advised that ESMA has a significant amount of work to do in the reference data space.
The FCA is progressing with its work on their new market data platform which will replace Zen. It will be hosting an event on 30 March 2017 which will provide feedback around industry connectivity to the new platform.
Regarding APA and ARM approval, the FCA advised it has six months to consider the submitted applications. ARM connectivity testing will form part of the approval process and therefore do not consider any approval will be made until after the second half of 2017.
Discussions are ongoing regarding the approach that will be adopted towards cut-over to MiFID II. The FCA expects firms to report appropriately and continue to address any issues up to cut-over. The FCA has made it clear that it expects firms to be ensuring compliance with current obligations. They will not tolerate firms taking their eye off the ball ahead of new requirements being established.
The FCA confirmed that the 3 Jan 2018 was the deadline date for implementation and although it recognises that this is a complex and challenging piece of legislation, it expects the industry to make every effort to comply with requirements by this date.
The regulator outlined that the Senior Management Regime continues to be rolled out and along with its expectations in respect to firms ensuring clear reporting lines and accountability in regards to MIFID II implementation projects. This provides a very clear message to firms that where failures occur, it will look at who is accountable and if the appropriate systems and controls are not applied, firms will fall short of the regulators expectations.
Lastly, it was advised from an “inducements” perspective the sell-side can provide trade reporting for buy-side firms. Though firms should consider their approach in conjunction with meeting “Best Execution” requirements.