EU's MiFID II Market-Rule Delay Seen as Too Little, Too Late

  • EU Commission pushes law's start date back to Jan. 3, 2018
  • German lawmaker calls extension proposal `incomprehensible'

The European Union’s plan to push back the start date of MiFID II, an overhaul of market rules covering everything from derivatives trading to bond pricing, by a year to 2018 ran into opposition from some lawmakers before the ink was dry on the press release. This adds to uncertainty about whether 12 months are enough.

The European Commission, the EU’s executive arm, proposed the delay on Feb. 10 to “take account of exceptional technical implementation challenges faced by regulators and market participants.” The European Securities and Markets Authorityhad pushed for an extension because there wasn’t sufficient time for banks and other financial institutions to build necessary data-reporting systems before the original 2017 deadline.

The proposal, which must be approved by the European Parliament and EU member states, doesn’t explicitly address concerns voiced by 17 finance ministries about the time needed to convert the EU rules into national law. Germany and the U.K. led the call for the commission to factor in a nine-month transposition period after a slew of implementing standards are on the books. There’s no fixed schedule for adoption of those standards.

Important Issue

The commission’s proposal “fails to change the date of transposition in accordance with the overall delay,” said Markus Ferber, the EU assembly’s lead lawmaker on MiFID II. “This makes it almost impossible for member states to transpose all relevant provisions in time. This is even more of a problem as the commission is still far behind schedule when it comes to presenting the delegated acts and regulatory technical standards.”

In forthcoming negotiations, the German Finance Ministry will push for the extension of the deadline for EU member states to convert the EU rules into national law, currently set for July 3, a spokeswoman said. The transposition date is an important issue for the German government, she said.

“The commission’s proposal is incomprehensible,” said Matthias Hauer, the lead lawmaker on MiFID from Chancellor Angela Merkel’s Christian Democratic Union in the finance committee of Germany’s lower house of parliament. “Without regulatory technical standards, it’s impossible to implement these rules correctly. The commission should explain how this is supposed to work.”

Nine Months

In a letter to the commission, the 17 finance ministries said EU-level legislation such as MiFID “often leaves room for interpretation and requires further specifications that can only be provided at national level” when final implementing rules are available. And since national laws face an approval process in parliaments that includes consultation with industry and the public, at least nine months should be allowed for transposition after the EU completes the MiFID implementing rules, they said.

“Given the circumstances, we consider that a delay to the transposition date is appropriate, and we understand that this is a widely shared view among member states,” said Jacqui Coleman, a press officer at the Irish Department of Finance, which signed the 17-nation letter.

Kay Swinburne, a British member of the European Parliament, said both the assembly and member states “can theoretically amend the proposal for a delay.”

“Tying the date of application to the adoption” of the implementing measures “is normally the way I prefer EU regulation to come into force,” she said. “However in this case, given the far-reaching nature of MiFID II and the considerable changes the whole market place will need to make, maybe a fixed, yet realistic, deadline is better as it gives a clear date to aim for.”

‘Targeted’ Delay

The initial push to delay MiFID II, a vast, complex law that affects nearly every financial firm operating in the 28-nation bloc, from giants like Deutsche Bank AG and Goldman Sachs Group Inc. to small hedge funds, came from ESMA. Steven Maijoor, who heads the regulator, called for a “targeted” postponement “only related to IT systems.” Firms need extra time, especially since the technical standards needed to make the rules work in practice probably won’t be ready until “well into 2016,” he said.

The one-year extension “will not have an impact on the timeline for adoption” of the standards, according to the commission, which said it would “proceed with their adoption irrespective of the new date of entry into application of MiFID II.”

‘Tight’ Schedule

“Even with the delay, the timing is going to be tight,” said Sean Tuffy, senior vice president at financial-services firm Brown Brothers Harriman. “In reality, 2018 really isn’t that far away. I don’t think we should underestimate the challenge that lies ahead, for both the industry and regulators. A longer delay may have been better, but politically that wasn’t on the cards.”

Hill said the commission is “pressing ahead” with the implementing rules for MiFID II and expects to announce them “shortly.”

Time is of the essence, according to Stephen Fisher, managing director in BlackRock’s global government relations and public policy team.

While the delay is “a positive development for investors” as it gives firms more time to get their systems up to speed, “it is vital that this extended implementation period is not eroded by further delays in the rule making process,” he said.

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