MiFID II: Waiting for Godot
MiFID II, arguably the most significant regulatory onslaught to hit the financial services industry since Big Bang, is in a state of constipation. We are waiting with baited breath for release of the Delegated Acts by the European Commission to set MiFID II in motion. These are the Level 2 texts that give the detailed implementation rules and until they are out, the rules aren’t final. Firms cannot embark on implementation work until they know what they’re implementing. The release should have come in June, then was delayed to end of September. The plan now is early November.
The industry’s frustration at the delay is compounded by the fact that the January 3, 2017 MiFID II implementation date is set in stone, explicitly written into the Level 1 texts, so the greater the delay in releasing the Delegated Acts, the tighter the timeline to achieve implementation. There have been calls to delay implementation, most notably by the Investment Association, but a change in the implementation date is extremely unlikely. To do so would require unanimous agreement by all three institutions: the European Commission, the European Parliament and the Council of Ministers. In practical terms, this is all but impossible ‒ Europe is as united as a herd of cats – and the commission will be mindful of the risk of reopening the texts in any way; it would open Pandora’s Box.
But the certainty of the implementation date is helpful. Legal deadlines mean we can work backward to derive landing dates for the milestones that must be met along the way. Key is the transposition deadline of July 2016, the date by which EU member states must have transposed MiFID II into local rulebooks. Failure to achieve this would put national competent authorities in breach of European law, so we can be certain that UK regulator the Financial Conduct Authority (FCA) will meet this deadline. FCA rule making is done by consultation, with set timelines.
We can say with a high degree of confidence that the FCA’s MiFID II implementation policy statement (PS) will be out in June 2016. The normal consultation period would be 12 weeks, but in exceptional circumstances could be compressed to eight weeks. To achieve this, the FCA would have to release its MiFID II consultation paper (CP) in February 2016 at the latest, and in January 2016 if the normal 12-week consultation period is to be observed. Achieving this timetable is possible if the Delegated Acts come out this November.
As for the European Parliament review period, that’s a red herring. After the release of the Delegated Acts, the European Parliament has a three-month review period that can be extended by a further three months. For the purposes of implementation and, crucially, for the FCA’s CP/PS process, however, we can afford to ignore the European Parliament because at this final stage it is a simple yes/no vote. Parliament cannot now amend the texts, and the risk of a ‘no’ vote at this point, throwing out the entire bill, is remote. To all intents and purposes, release of the Delegated Acts will give us all the finality we need and implementation work can begin.
From the perspective of important regulatory news flow, therefore, we are heading into a very busy few months: MiFID II in November, the Wholesale Competition Review in December/January (see feature in the forthcoming winter edition of IR Magazine) and at some point we are also likely to see the appointment of a new, permanent CEO of the FCA.