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Asia Regulation Summits – How MiFID II ready are you?

September 19, 2017

With just over 100 days to the looming deadline of 3 January 2018, when Europe will see MiFID II come into force, Bloomberg hosted Regulation Summits in Singapore and Hong Kong this month covering aspects of MiFID II that we believe are most pertinent to Asia and non-EU firms.

It was clear at the summit discussions that MiFID II is arguably one of the broadest and most far-reaching pieces of financial industry legislation ever, designed to create fairer, safer and more efficient markets. How will MiFID II impact Asian markets and non-EU firms?  How will it affect market structure? How should firms ensure trade transparency and post trade compliance? These were some questions discussed at the Summits, which were attended by over 300 market participants.

MiFID II does not place direct obligations on buy or sell-side firms operating in Asia. However, because it touches nearly every aspect of their EU customers’ investment workflow, it may indirectly affect Asia firms in ways traders, operations and compliance managers may not realize. Non-EU firms should be aware of the indirect effect of MiFID II, including receiving requests from your EU counterparty to help them fulfil requirements so that they are compliant under MiFID II.

Asia firms are beginning to understand that if they do not help their EU relationships to comply with MiFID II they may risk losing their business.

Are firms making progress to become “MiFID II friendly”? Based on surveys we conducted with market participants at the summits, the results were mixed:

  • Expected impact on Asia: The majority of respondents in Singapore (46.4%) believe that MiFID II is the regulation that will have the largest impact on their businesses in 2018, while Hong Kong respondents (47.7%) mentioned local regulatory requirements as having the most significant impact, followed by MiFID II (31.8%).
  • MiFID II readiness: In Hong Kong, only 21% of survey respondents and 35% in Singapore believe that they would be MiFID II ready by January 2018. With a little over three months to MiFID II going enforce, 6% of Hong Kong based respondents and 1.2% of Singapore respondents expressed that they thought that their firms were ready to help their clients’ compliance with MiFID II now.
  • Research unbundling: Over half of the respondents in Singapore and Hong Kong said they were somewhat aware of aspects of MiFID II that apply to non-EU firms such as research unbundling, changing commission rules and compliance requests, while approximately a third said they were not aware.
  • Technology: When asked how technology is helping the most with operations, most respondents in Singapore (46.9%) said technology helps most with regulatory compliance while over half (55.1%) in Hong Kong mentioned front to back office workflow streamlining.

At the panel discussions, practical insights on what Asian firms need to do were shared by industry experts from regulators, leading banks, buy-side firms and Bloomberg. Firms that have EU operations directly subject to the new regulations noted that data collection and transaction reporting to their local EU regulators were critical areas that they were the least prepared for. Experts stressed that Asian firms that transact with EU counterparties have to get a LEI or Legal Entity Identifier by 3 January 2018 when MiFID II is implemented or they will not have access to EU liquidity – No LEI, No Trade.

Bloomberg issues and maintains LEIs at Getting an LEI is a first step for Asian firms to become “MiFID II friendly.” And as non-EU sell side firms embark on their MiFID II journey,  they need to think about best execution, know-your-customer and research.

Bloomberg has built a range of risk and compliance technology solutions to help clients operating in the EU comply with MiFID II and assist firms operating locally become MiFID II friendly.

MiFID II is an EU regulation that will have impact globally – with firms either adopting MiFID II principles for competitiveness reasons, best practices because the new technology reduces operating risk, or because EU customers will need firms, in some cases, to change the way they do business so that they can be compliant with the regulations.  Asia buy-side and sell-side firms should speak to their EU relationships to determine exact requirements to avoid potential business disruption come 3 January 2018.

Vicky Cheng, Head of Government Affairs, Asia Pacific. More information can be found on {MIFI <GO>}.