OPINION: Post-vacation regulation
As people head for the beach the last thing on their mind should be regulation. However they might not be able completely banish these thoughts as they know the technical standards for MiFID II, the new rules governing financial markets in Europe, are due out in September. In May the European Commission allowed regulatory authorities to delay issuing the standards by three months from their original deadline.
However the MiFID II implementation date has not moved from January 2017 and it typically takes at least 18 months to execute new technology projects and allow sufficient time for testing.
The European Securities and Markets Authority could take lessons from the implementation of new rules covering the exchange of margins for over-the-counter derivatives which are not centrally cleared.
Firms were initially meant to start exchanging initial margins on non-cleared OTC derivatives from 1 December this year. In March the Basel Committee on Banking Supervision and the International Organization of Securities Commissions delayed the implementation by nine months to 1 September 2016 to give the industry more time to prepare. The delay also included a six-month phase-in of the requirement to exchange variation margin from 1 September 2016.
This month a consortium of thirteen global banks, ICAP, The Depository Trust & Clearing Corporation, Euroclear and software provider AcadiaSoft announced the launch of a hub to meet the new rules and allow straight-through processing of margin calculations and payments on a standardised basis across the industry. The Hub is being launched in phases and should be completely functional by the second quarter of next year.
By allowing market participants to work together to devise their own solution and put in standardised processes across the industry means that the regulators are more likely to meet their desired goal – a more safe and more stable financial system.
Esma should use its three month extension to look at whether the implementation of any aspects of MiFID II can use the same approach. Could the implementation date of January 2107 be part of a phased introduction to the new rules to give the industry sufficient time to come up with its own solution in a similar way ? There seems little point in rushing to meet a hard deadline if the execution is shoddy and ultimately leads to more problems.
It always takes some time to transition smoothly back into work after returning from holiday. In September Esma could make that transition much easier by not hitting firms with impossible to meet deadlines for MiFID II.
Trade-repository and credit-rating agency fees also will be hot topics for 2019.
The Esma Post-Trading Standing Committee is looking for new members.
The majority of hedge funds are set up in Bermuda and the Cayman Islands
As Yogi Berra might have said about MiFID II preparation: it will get late early.