When It’s Brexit or Mifid II, Banks Must Look at Regulation First

The implications of Brexit can wait; Mifid II is a much more prescient concern for sell-side institutions, not just in Europe.


John considers whether the arrival of Mifid II in less than six months or the UK’s departure from the European Union is of more pressing concern to banks in London.

It never rains but it pours, goes the adage, and there are few places where that is as applicable as in the UK. Famed for its terrible weather and gloomy citizens, the country is often depicted as a downbeat, sometimes melancholic place that is at odds with its true nature of resilience and spirit.

While that does sound a bit like propaganda a visiting diplomat might spout when trying to secure investment from foreign parties, the UK is certainly going through significant upheaval in many ways that is putting the traditional view of the country and its inhabitants under the microscope in a manner unheard of for many years.

Between the UK getting ready to leave the European Union and the regulatory changes that are set to impact the financial markets landscape in January next year resulting from the revised Markets in Financial Instruments Directive (Mifid II), those sell-side banks with intrinsic ties to the British market are faced with serious questions on how to move forward into a new trading and social era.

I was recently asked by the director of a well-known industry technology vendor which of the two—Brexit or Mifid II—I considered to be of most importance to banking institutions with a European base here in London. I quickly answered that Mifid II had to be of primary concern, purely because of the amount of uncertainty that still surrounds how Brexit will pan out.

Perhaps I was a little hasty in dismissing the impact of Brexit on the big banks. While I have no doubt that upping sticks from London is an enormous undertaking—as I wrote in our June issue—there is also a huge opportunity to redesign, or at least learn from past mistakes, when it comes to establishing a new European hub outside of the UK should the “hard Brexit” scenario come to pass. Recently, more banks have started to go public with their post-Brexit plans: Morgan Stanley, Deutsche Bank and Citi have all plumped for Frankfurt as a future base of European operations, while Northern Trust has opted to relocate to Luxembourg over Dublin, following in the footsteps of a number of insurance companies such as AIG, RSA and Hiscox. Then there are those like JPMorgan that are still keeping their options open, or at least private, for now.


The primary differentiator between the two issues is immediacy. Whereas Brexit still seems like a problem for another day, Mifid II is a certainty—it will enter the European statute books on January 3 next year. The winds of Brexit will shift and change, but Mifid II is now cast and will arrive soon.

Speaking to a packed room at a Mifid II seminar hosted by WatersTechnology at the end of July, Stephen Hanks, market policy manager at the UK’s Financial Conduct Authority (FCA), said the regulator still had concerns about preparations for the transaction and trade reporting requirements of Mifid II. Hanks highlighted decisions about Approved Reporting Mechanisms (ARMs) and Approved Publication Arrangement (APA) providers as a source of concern.

“The impression we get is that there is going to be an awful lot of work to be done in the final quarter of the year in this regard,” he said. “This presents a significant challenge for APAs, ARMs, and other service providers who are going to be assisting firms in this respect. I would urge firms to crack on with putting in place those arrangements.”

To my mind, this is indicative of the question of which is the more pressing matter. Mifid II has its technology requirements clearly telegraphed—depending on who you ask—and has been developed in discussion with the industry over the course of several years. By this point, banks should be nearing the completion of implementations for January, or at least on the way to doing so, if they want to remain on the regulator’s good side.

In comparison, the details around Brexit are far less clear. It will be some time before negotiations between the European Union and the UK government are concluded and only then will financial services firms know exactly what they need to do. It’s a good bet that some will already have set budgets aside for new technology spends in direct relation to the post-Brexit world, but for now at least, the focus must be on regulatory compliance. 

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