FCA Recognizes Mifid II Data Challenges but Reiterates “Real Deadline” Stance
The UK's Financial Conduct Authority is working to ensure its own readiness for Mifid II data challenges, and acknowledges that many firms will struggle with similar issues.
Mifid II will bring a host of new challenges for both market participants and regulators, but those in the industry hoping for an easy ride, in particular another delay to its implementation, are in for a rude awakening, according to Hanks.
“This is a real deadline,” Hanks asserted. “I am sometimes asked if it is going to change again and the short answer is no. There is not going to be any legislation that pushes the implementation deadline further out, and we are expecting firms to make all efforts to be ready to comply by January 3, 2018. We recognize, however, that there is a significant challenge for firms in being ready by that deadline.”
In terms of supervising the legislation, the FCA will place significant priority on transaction reporting, which he describes as “fundamental” in terms of the regulator’s ability to keep the markets safe (orderly), transparent and reduce financial crime. Hanks also highlighted changes to best execution requirements – where firms must now provide evidence that they have taken “all sufficient steps” to achieve best execution – for special consideration.
Data Challenges
Addressing the data challenge at the heart of the regulation, particularly industry concern over how prepared regulators are to handle the increased volumes of transaction data they will report following the implementation of Mifid II in January next year, Hanks said: “We recognize that we have more work to do in terms of ensuring that we are able to make proper and full use of that data, and to link it up with other sources of data and information in trade repositories, which will be an ongoing challenge for us. The fact that there is going to be more data puts an emphasis on us to use that data effectively.”
The FCA will utilize the data submitted to it by various required parties across the market in four distinct areas, with particular focus on transaction reporting, according to Hanks: detecting and deterring market abuse in the equities markets where there is more data available before broadening out to non-equities; supporting its work supervising individual firms to assess trading strategies and match that to data in transaction reports; analysis of financial markets and how the information may feed into FCA policies; and analysis of wider financial market stability.
There have been a large number of new platforms and compliance-related solutions rolled out to the market in recent months ahead of Mifid II’s arrival, as vendors seek to both provide firms with the tools they require and simultaneously make themselves indispensible to the market. However, Hanks reminded delegates that Mifid II is about more than encouraging additional solutions from data vendors.
“The data requirements are there to advance significant public policy goals,” he said. “People need to remember those public policy goals when thinking about their implementation and thinking about what they are doing. It is about outcomes and not just the practicalities of the data solutions that will be implemented.”
Practicalities & Accountability
While many market participants are overhauling their technology infrastructures in order to comply with Mifid II’s various tenets, the FCA is also undertaking its own technology update projects in preparation.
“We are going to be replacing our existing Zen database for transaction reports with a new market-data processor, which is going to suck in information from transaction reports but also play a broader role in relation to information under Mifid II,” Hanks explained. “We’re going to use it to take in information for transparency calculations, calculations around the double volume cap, and for reporting around quality in derivatives.”
The European Securities and Markets Authority (Esma), for its part, also has a “significant amount of work to do,” both in terms of its technology and its capacity to manage data, according to Hanks. Esma is also reliant on the work done by the relevant competent national authorities, such as the FCA, he said.
Accountability for the way in which implementations occur is also a key theme for the FCA, says Hanks, pointing to the introduction of the Senior Manager’s Regime in March last year. “Senior management have to take a lead in terms of the culture within the firm and the approach to implementation,” Hanks said, rather than just treating Mifid II as a box-ticking exercise.
However, he was quite to add, that the regulator will not take enforcement action against those firms that are able to demonstrate “legitimate assumptions or legitimate attempts to comply with the spirit of the legislation.”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Regulation
DSB says industry is ready to meet UPI mandate ahead of deadline
The Unique Product Identifier will be required for certain OTC derivatives in the EU at the end of April, following US adoption in January.
‘Very careful thought’: T+1 will introduce costs, complexities for ETF traders
When the US moves to T+1 at the end of May 2024, firms trading ETFs will need to automate their workflows as much as possible to avoid "settlement misalignment" and additional costs.
Court case probes open-source licenses as movement stands at crossroads
The Software Freedom Conservancy’s lawsuit against TV-maker Vizio begins trial in California, raising questions about open-source licenses and the risks posed by adhering to them.
Waters Wavelength Podcast: Countdown to T+1
DTCC’s Val Wotton joins the podcast this week to discuss the impending move to T+1 in the US.
Consolidated tape hopefuls gear up for uncertain tender process
The bond tapes in the UK and EU are on track to be authorized in 2025. Prospective bidders for the role of provider must choose where to focus their efforts in anticipation of more regulatory clarity on the tender process.
Fighting FAIRR: Inside the bill aiming to keep AI and algos honest
The Financial Artificial Intelligence Risk Reduction Act seeks to fix a market abuse loophole by declaring that AI algorithms do not have brains.
Waters Wrap: The rise of AI washing… and regulation washing?
The SEC recently levied fines against two investment advisors over “AI washing”. Anthony takes issue with the announcement.
Prepare now for the inevitable: T+1 isn’t just a US challenge
The DTCC’s Val Wotton believes that firms around the globe should view North America’s move to T+1 as an opportunity—because it’s inevitable.
Most read
- Chris Edmonds takes the reins at ICE Fixed Income and Data Services
- Deutsche Börse democratizes data with Marketplace offering
- Sell-Side Technology Awards 2024: All the winners