The 3 pillars of MiFID II – Establishing a new model for global regulation?
This article is by [tooltip id=”SteveNiven” title=”Steve Niven” background=”black”]Steve Niven is the EMEA Head of Compliance, Bloomberg. [/tooltip], [tooltip id=”Chris McDonald” title=”Chris McDonald” background=”black”]Christopher McDonald is the Regulation and Compliance Product Manager for Bloomberg TOMS. Chris leads the design, development and delivery of the regulatory compliance capabilities incorporated into Bloomberg’s sell-side fixed income order management system, Bloomberg TOMS. Prior to joining Bloomberg in 2011, Chris managed middle office operations supporting credit, exotic and interest rate derivatives trading desks in London and New York for JP Morgan[/tooltip] and [tooltip id=”GaryStone” title=”Gary Stone” background=”black”]Gary Stone is the Chief Strategy Officer for <a href=”http://www.bloomberg.com/trading-solutions/”><strong>Bloomberg Trading Solutions</strong></a> and is a recognized expert on U.S. equity market structure currently serving a two year term on the U.S. Securities and Exchange Commission’s <a href=”https://www.sec.gov/spotlight/equity-market-structure-advisory-committee.shtml”>Equity Market Structure Advisory Committee</a>.[/tooltip].
MiFID I harmonized the European marketplace by creating EU-wide passport concepts. It also provided regulators with reports that enabled them to assess how the markets worked. Nearly eight years after implementation of MiFID I, MiFID II is about to arrive on our door step. Guidance will probably be delivered in phases so that the organizations impacted by the regulation can start to put processes and procedures in place to comply with the mandate by the January 2017 deadline, which is rapidly approaching.
MiFID II is a massive undertaking centered generally around the obligations that “investment companies” have toward “investor protection.” Investment companies is the key phrase here.
The use of “investment companies” in many of MiFID II’s articles results in the practical application of the technical standards applying equally to the buy and sell side. Regulation was traditionally bifurcated by the buy side and sell side roles. The new guidelines essentially shift responsibility from a role-based (institutional buy side / sell side) to an activity-basis (what you are doing/how you are doing it).
In our opinion, most of the regulation is being done in the name of end “investor protection” – the individual. And, because of that, it is effectively creating a new framework for regulation based on three principle pillars:
- Best execution, information to clients, and surveillance
- Limits, monitoring and controls
- Regulatory reporting and Transparency
MiFID II is creating a new regulatory eco-system. And, because MiFID II is being copied in some regions and has extra-territorial effects in other, almost all new regulation is now standing on one of these principle pillars.
We will examine these three pillars in more detail in future posts.