Linda Gibson is director of regulatory change and compliance risk at Pershing, a BNY Mellon company providing trading, custody and post-trade services.
With just 100 days until MiFID II comes into force, there is an indication within the industry that some firms will struggle to complete all of the requirements in time. In light of this, some commentators have cited the possibility of regulatory forbearance, where the FCA gives some leeway to firms in complex areas where compliance is more challenging within the original timeframe.
In a speech on 20 September 2017 the FCA confirmed it would act proportionately when considering enforcement action against firms which haven’t meet all MiFID II requirements straight away, provided there was evidence that sufficient steps had been taken to meet the new obligations by the implementation deadline. But it would be unwise to rely on regulatory forbearance, particularly in certain areas where the FCA is unlikely to have flexibility on meeting its requirements. Firms must continue to act on areas such as permissions, transaction reporting testing and repapering contracts now to ensure compliance on 3 January 2018.
The FCA’s original deadline for applications for a variation in permissions was 3 July 2017, but indications are that a significant number of businesses failed to submit the necessary paperwork by this deadline. Any firm unsure of whether it needs new or different permissions must open dialogue with the FCA immediately to ascertain their requirements.
This is essential to ensure they’re not conducting unauthorised investment business at the start of next year as FCA have said firms acting without the required permissions may face civil, regulatory and/ or criminal consequences. Firms should be aware that the FCA may prioritise applications from firms brought into scope for the first time by MiFID II, so it could take some time for certain submissions to be reviewed.
Transaction reporting testing
The FCA’s transaction reporting test system has been live for almost two months, providing a strong indication that the regulator expects firms to be advanced with their preparations. Firms need to decide whether they will undertake transaction reporting themselves or delegate the function. They can’t underestimate the importance of this decision, which will probably require system build.
Firms must consider carefully the information they require from clients and how this is captured and processed. The FCA will likely have zero tolerance for failings as the data is essential to their monitoring and detection of market abuse.
Many market participants will rely on vendors for a MiFID II compliance service. It’s likely that vendors will discontinue some existing offerings and new contracts or repapering will be unavoidable. Firms must act now to get ahead of the flurry of paperwork likely to bury the City in Q4 2017.
Firms must evidence their implementation plans and processes at every stage of their compliance journey and know their gaps. Only firms with credible plans can provide well-documented logic to support their assumptions and decisions should any unforeseen obstacles prevent them from achieving full compliance before 3 January 2018.