The MiFID II merry-go-round has been circulating at great pace all year and so much (mostly positive) MiFID II news seems to have occurred this year already, but all of a sudden it’s June and MiFID II is only six months away. Final clarifications are coming through from ESMA and the FCA, and it looks like it’s all going to happen on the January 2018 schedule, albeit with a somewhat ‘soft’ start.
A special concern for us at Citisoft is the smaller asset managers, who in many cases have done relatively little to date, and seem to be waiting on system or service providers to help them understand their MiFID II solutions. Many of the system providers have been really proactive and have rapidly got up-to-speed with the regulation, especially trying to find commercial angles to exploit. But the sloth of some buy-side firms is a worry even now.
Progress at some asset managers has been almost glacial in its response to MiFID II. The working presentations, seminars and neat documents produced by service providers are laudable, but of course they only ultimately tell the tale of what that vendor has decided to do. It would be a foolish senior executive at any buy-side firm – no matter how small the firm – to rely too heavily on well-meaning but limited knowledge provided by a service provider.
There’s so much of the Conduct of Business in MiFID II that smaller firms need to understand, especially the complexities of Commission Management and the unbundling sagas that are associated with that. They also must take a broader view of what is being decided beyond the parochial shores of the UK. Undertaking a thorough review of operating models and data management processes is imperative.
LEI codes are easy at one level but a total mess at another, with real questions as to whether the mechanism is fit-for-purpose, but asset managers just need to get on with it and talk to their clients right now. The LEI issue isn’t going away, however, and practical solutions are definitely available. Asset managers that haven’t got a plan with which to tackle these aspects of the regulation - and a full solution set - identified by no later than September will be in a serious position by the end of the year.
Asset class operations are so important in any analysis, and while equities don’t portend too many problems (other than making the necessary changes to support Best Execution, Commission Management and Transaction and Trade Reporting), the extent of possible modifications for fixed income is far greater and any derivatives will necessitate significant reappraisal. Reporting and control functions must also be assessed, as the MiFID II deadline gets ever closer. New relationships and services may be required to avoid unworkable increases in administrative support for the whole pre-execution process.
If you are a smaller asset manager and you’re waiting to be told what to do by a service provider, then now is the time to act. It is abundantly clear that the FCA (or whoever your NCA may be) will not be interested in excuses this time next year.