Confusion Reigns as Firms in Europe Struggle to Cope With Regulatory Onslaught

Terry Flanagan

The seemingly constant barrage of new regulation is taking its toll on Europe’s capital markets.

“There is a lot of confusion—it is too much at the moment,” said Dr Christian Voigt, business solutions architect at trading and technology company Fidessa.

Dr Christian Voigt, business solutions architect, Fidessa

Dr Christian Voigt, business solutions architect, Fidessa

“We have MiFID II, Emir, MAD, the financial transaction tax and short-selling. It is extremely difficult for practitioners to keep track of all of that. If you had these pieces of legislation one after another then it would become much clearer. A large part of the problem is the sheer amount.”

Financial information provider Thomson Reuters, in a recent study, has found that over four-fifths of compliance teams surveyed believe that there will be an increase in the volume of regulatory information landing on their desks this year, with 31% of compliance professionals surveyed in the U.K. saying that they expect to spend more than 10 hours per week tracking and analyzing regulatory developments.

“Compliance officers are finding the environments in which they operate increasingly challenging,” said Mark Schlageter, managing director, governance, risk and compliance at Thomson Reuters.

“Shifting supervisory expectations, the volume and pace of regulatory change and the start of big implementation programs for major complex legislation continue to pile diverse pressures on compliance functions.”

Of the regulations zooming into view, Voigt at Fidessa believes there are two in particular that firms should be focusing on most in the coming months.

“If you were to say which are the two most important ones to focus on at present, I would say it would have to be Emir and the FTT,” said Voigt, who is gaining a name for himself as something of a regulatory specialist in Europe.

Emir, or the European Market Infrastructure Regulation to give it its full title, is part of a global push to see all standardized over-the-counter derivatives contracts pushed through centralized clearing and on to exchange-like venues in a bid to increase transparency and reduce systemic risk and parts of the new rules are now in operation.

While the financial transaction tax, which is set to enter into force early next year in 11 nations in Europe including Germany, France, Italy and Spain—but not the U.K.—will see a 0.1% tax imposed on all buyers and sellers of share and bond transactions issued in the participating areas and a 0.01% levy on derivatives trades. The ‘issuer principle’ of the FTT means that if a trade has been issued in one of the 11 participating countries then regardless of where it is then traded, the trade will be still hit by the tax—which is worrying many market participants in London and even New York.

France, since August last year, and Italy, starting from March 1, have already introduced nation-wide FTTs just to confuse market participants still further.

“With Emir you have to focus on the Level 2 text that is coming in and dig into the details,” said Voigt. “The other one is the FTT, which on a trading level is causing a number of fears.

“And then I am concerned when countries are adopting their own laws. In terms of the FTT, I am concerned that France and Italy are front-running. Once the directive on a European level is implemented, they must be updated and potentially have to be changed, again.”

Voigt also has fears over the process involved around the second incarnation of MiFID, the daddy of all regulation in Europe, which is currently still being discussed in Brussels, and which promises huge changes to the trading and investing landscape once it comes into force, especially to such practices as high-frequency trading. But it is the long delays that have held up the progress of MiFID II in Brussels—and that has resulted in some nations to go it alone—that is causing Voigt most anguish.

“The German HFT Act is front-running part of the MiFID II proposals, as it might be implemented this year,” he said.

“Additionally, we have the French banking bill. These are typical examples where countries run off on their own. We implemented the European Union, which aims for a single market, so that those differences wouldn’t occur any more.”

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