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MiFID 2 holed below the waterline

ESMA have published an internal note dated 2 October 2015 outlining the necessity for and certainty of delay in a number of core MiFID 2 provisions, the likely extent of such delay and the various means of effecting it. The note refers to the sequential nature of MiFID 2 implementation, the complexity of certain interdependent requirements and the compressed legal timeline. The note focusses on four key areas: reference data, transaction reporting, transparency parameters and publication, position reporting.

“14. In the course of the last couple of months, it has become evident for ESMA and NCAs that it will not be feasible to have those systems ready for 3 January 2017. Market participants, who will need to feed into those systems, are facing similar implementation challenges.”

The note details the role of each of the key areas and outlines the reason for their likely delay; in each case, the reason is that ESMA have delivered the relevant RTS too late to enable full specification, build and testing of the necessary IT infrastructure before the 3 January 2017, summarised thus:

“34. The possibility of a delay is, in some cases, already a certainty. The current state of the final rules and the expected publication time prevent the different parties to start working with the necessary certainty and we are already past the point of no return after which the launch of the system into production in January 2017 becomes unfeasible.”

While delay is certain, its extent and nature are currently unknowable, ESMA say that a final estimate of new start dates will not be available until before March 2016. The note discusses a two possible means of effecting the necessary delays, essentially adjustments at Level 1, 2, 3, offering a spectrum of ease of implementation vs. lack of legal certainty. Unsurprisingly, ESMA’s marked preference is for fundamental Level 1 solution, obviating the legal vacuum in which MiFID 1 is repealed by its successors start date, but large elements are still missing. The note concludes,

“42. ESMA stands ready to advise the European Commission, as holder of the right of initiative, and expand any item of this note to come to a concrete solution as soon as possible.”

Just to be sure that the point is made, the above note is accompanied by the publication of a 2 October 2015 short letter from Steven Maijoor to Oliver Guersent, the Commission’s Director General for Financial Services. The letter draws his attention to the need for a timeline alteration and emphasises the need for the “early and full involvement of the co-legislators”. The letter concludes,

“We think that it will be extremely important to come as soon as possible to a precise assessment of the length of such delay, in order to allow the different stakeholders to plan and develop the systems properly. Before that, we consider it is better not to publicise these early discussions and considerations between us and the EU institutions, to avoid confusion and speculation, which could be counterproductive. We are therefore not publishing this letter for this reason.”

The obvious conclusion is that these “early discussions and considerations” have not been as amicable or productive than they might have been, ESMA has now decided to force the issue into the public arena. Given the strength of their objection to the current timeline, considerable (if currently unknown) delay seems inevitable.


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