The second Markets in Financial Instruments Directive (MiFID II), which comes into effect on 3 January 2018, is widely regarded as one of – if not the – single largest and most significant regulatory initiatives undertaken by the European Union since 2008. As a result, it is likely to reshape the face of European capital markets and will have a major impact on investment firms from both a commercial and operational perspective.
MiFID II, when combined with the European Market Infrastructure Regulation (EMIR) completes the European response to the G20 commitment made in Pittsburgh in 2009 to manage the risks associated with over the counter (OTC) derivatives trades.
Additionally, MiFID II updates the existing MiFID framework and addresses issues in relation to transparency, investor protection and market infrastructure. It comprises two key components; the Directive and Regulation, known as the Market in Financial Instruments Regulation or MiFIR.
In this note we will highlight the key aspects of these requirements and provide an overview of the common challenges investment firms are facing ahead of and during implementation. We will also discuss the key risks involved in MiFID II implementation and how they can be addressed.
With less than one year to go until the requirements come into force, each investment firm should by now have a good understanding of how it is impacted by MiFID II and – if necessary – have initiated projects to ensure that they will be compliant by the implementation date.
One important issue that cannot be over-emphasised is that, unlike other regulatory developments, there is no phase-in period with MiFID II and firms will have to be ready for its immediate implementation on 3 January 2018.