Last year’s announcement that MiFID II – or the Markets in Financial Instruments Directive to give its full name – would be delayed until 2018 may have come as welcome news for many organisations at the time.
However, the introduction of MiFID II is now less than 12 months away and some financial services (FS) firms still have preparations to make before the directive officially comes into force on January 3rd 2018.
While most large-scale investment banks and similar-sized businesses are well underway with meeting their compliance obligations, smaller private wealth firms and asset managers may not have the same resources.
In some cases, MiFID II will cause significant disruption to FS businesses, including the transformation of many systems and processes, as well as potentially introducing new technology solutions.
What changes will MiFID II bring?
MiFID II is likely to result in a number of compliance headaches across the industry. But what are some of the bigger changes that are expected to affect asset managers and other FS firms? Let’s take a look.
Transaction reporting: The obligation to report relevant transactions to the appropriate authorities will become more onerous for businesses next year. Transaction reporting will apply to a wider number of financial instruments and additional information must be supplied with each order.
Furthermore, businesses that receive and transmit orders – but don’t execute them – will also need to report this activity or pass certain details to the receiving investment firm. Setting up new systems to capture data, produce reports and transmit this information to the relevant authorities could be a major burden for smaller firms.
Client categorisation: FI firms need to be aware of new client categorisation rules that will come into play. Currently, clients can either be categorised as eligible counterparties, professional clients or retail clients. This will continue under MiFID II, but slight changes to how clients are categorised may require businesses to reassess their listings.
One example of the changes is that municipalities and local councils will now be re-categorised as retail clients unless they request to be treated as professional clients and pass the right qualitative and quantitative tests.
Investment research: The traditional practice of asset managers using Commission Sharing Arrangements is coming to an end and going forward the introduction of Research Payment Accounts or research paid by asset managers will need to be considered in conjunction with their budgets.
MiFID II requires businesses to be more transparent with investors regarding how much of their money goes towards research, which could lead firms to reduce or stop charges. In fact, some have already indicated they will pay for research themselves, although many are still deciding how to approach the problem.
Title transfer collateral arrangements (TTCAs): MiFID II will prevent businesses from concluding TTCAs with retail clients entirely, while also requiring them to show that adequate thought has gone into the use of TTCAs for non-retail clients.
In addition, organisations must appoint an officer who is specifically responsible for how clients’ assets are handled. Overall, the way in which client collateral is managed will become much more stringent under MiFID II.
How can businesses prepare?
Clearly, MiFID II will impose a range of new restrictions on FS firms, creating pressure on compliance departments across the country. The burden on small businesses with less capacity is even greater.
At Barclay Simpson, we are seeing demand steadily increase for interim compliance professionals who can help businesses make the necessary changes to their operations ahead of MiFID II’s introduction.
Typically, organisations are either looking to bring in specialists who have the regulatory experience to tackle MiFID projects directly, or compliance officers who can perform day-to-day duties in order to free up more senior staff for MiFID related work.
Firms are also looking for business analysts and project managers who can facilitate changes more generally, whether it’s the implementation of new systems or formulating policy changes.
Whatever your compliance needs, Barclay Simpson has extensive industry expertise and can help you identify the ideal interim solution for your operation. We also have a range of opportunities for contractors looking to find their next placement.