Banks May Get Extra Time to Soften Up EU Financial-Market Rulesby
European Commission considers postponing MiFID II start date
Delay isn't set in stone, European Parliament's Ferber says
Financial companies pushing back against Europe’s post-crisis market rule book for the past five years may get more time to chip away at regulations they say threaten their businesses.
The European Commission said on Tuesday that there’s probably not enough time to put the rules known as MiFID II into practice by the January 2017 target, and a one-year delay may be needed to give the industry time to adapt its businesses and systems. The technical work may be accompanied by ramped-up lobbying, particularly against rules on bond-trade transparency and payment for investment research.
“The implications can cut two ways,” Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland, said by e-mail. “On the one side, it allows more time to get things right from the outset and reduces the chances of systems breaking down. On the other hand, it can slow the momentum for reform and allows the industry more time to perhaps dilute the measures.”
The EU’s revamp of its market legislation, approved in 2014, is a centerpiece of its effort to shore up regulation following the financial crisis of 2008. The new rules would affect 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. Industry groups have pushed for a delay, arguing that companies needed more time to adapt to the sweeping changes, many of which entail extensive technical refitting.
Deutsche Bank, among others, warned of “potentially damaging impacts on capital markets” from draft transparency rules for the bond market that go beyond U.S. standards. Changes proposed by the European Securities and Markets Authority to financial research payment rules also riled the industry, and even brought a rebuke from the finance ministries of the EU’s three biggest economies -- Germany, the U.K. and France.
The sheer complexity of the legislation and the accompanying technical standards, and the vast amount of work regulators and companies will need to do before the new system can run efficiently, was cited by the commission in considering a delay.
ESMA, the EU markets watchdog, warned that “it won’t be possible to implement certain aspects” of MiFID II in time, said Vanessa Mock, a spokeswoman for commission. “Our preliminary view is that we share their concerns and that a delay might be necessary.” The Brussels-based commission will discuss the possibility of a delay with the European Parliament and EU member states “before deciding on a final course of action,” she said.
No one should assume that a delay is certain, however, said Markus Ferber, the lead lawmaker in the EU assembly on MiFID II.
“What we have so far is a proposal that we will have a thorough look at,” Ferber said by e-mail. “While some areas that require reference data and complex IT systems seem to warrant some attention and some more time, I do not see why we should delay all chapters of MiFID II equally.”
Steven Maijoor, the chair of ESMA, said the time required for banks and other financial institutions to build the appropriate systems is too tight. And ESMA’s proposed regulatory technical standards, or RTS, needed to make the rules work in practice still aren’t completed.
“It will take some time, and well into 2016, before the text of the RTS will be stable and final,” he said in a Nov. 10 speech at the European Parliament. “The building of some complex IT systems can only really take off when the final details are firmly set in the RTS and some of the most complex IT systems would need at least a year to be built.”
These practical concerns were echoed by the Spanish Banking Association in a response to the commission’s announcement.
Considering a delay is the “correct decision,” since the MiFID II implementation schedule “was starting to be too tight, not only for the banks but also for the supervisors, due to the amount of work that remains to be done,” the group said in a statement. The proposed new time frame “seems more realistic and will help,” it said.
While postponing the new rules may help, it won’t relieve the financial industry of adjusting to this fundamental revamp of European financial markets.
“Ultimately the challenge for firms directly or indirectly subject to MiFID II will be to maintain momentum despite being allowed to shift down a gear,” said Andrew Henderson, a financial-regulation partner at law firm Eversheds. “Though the pain of MiFID implementation may be delayed, it still cannot be denied.”