MiFID II is coming. After a delay in proceedings, the updated Markets in Financial Instruments Directive will come into effect from January 2018.
The directive is designed to avoid any repeat of the 2008 financial crisis by improving transparency, removing conflicts of interest, and protecting and prioritising the interests of investors.
Which sounds great, but updating systems to adhere with this is going to cost firms a lot of money. It’s been estimated that the total cost of MiFID II for asset managers will be €353 million for implementation, plus another €158 million annually over the next five years to maintain compliance.
But the fines lying in wait for firms that transgress could be nastier still, so there’s no point in burying your head in the sand and pretending it’s not happening. As with any legislation, the biggest danger is not to prepare. If you do all you can to ensure that you’re ready for MiFID II, then there’ll be no horrible surprises.
And those that will prosper in the post- MiFID II landscape are those that are prepared and ready.
Here’s what you need to do protect yourself from MiFID II and turn the situation to your advantage:
Consider your clients
At the heart of MiFID II is the intention to protect investors and ensure that any investment is in their best interests. So, you should immediately assess your client reporting process and ensure you’re doing all you can to keep customers as well informed as possible. You must show them clearly why any investment they make with you is a good one. You must also be clear about the risks involved.
Improve your processes
MiFID II has specific requirements in regards to reporting and communications, so you must be prepared to improve your processes across both areas.
The directive expands trade reporting requirements to non-equities, and also calls for more detailed information – such as price, volume, timing, and execution venue. A report must be placed within a day of a trade taking place.
In regards to storage, MiFID II demands that all voice and text communications relevant to a trade must be stored for at least five years. These need to be shown to the authorities on request, so you need efficient technology in place that will store and file all communications across all channels – whether that be email, phone, Skype or social media.
Seize the opportunity
The bottom line is that you must accept MiFID II is happening and prepare accordingly.
Despite the expense, you shouldn’t see MiFID II as a negative. Treat it the right way and it can actually help your firm to grow by renewing outdated reporting and communication methods and offering clients a better and more informative service. This will make them happier – and happy clients means more investment.
Post-implementation, firms that haven’t accepted and prepared for the changes will be in trouble. Consequently, some are going to suffer and even go under.
Bad for them but – if you’ve been clever and prepared properly – good for you. Complying with MiFID II firm not only means you’ll avoid fines, it also puts you a step ahead of your tardy competitors.
And when you find yourself that step ahead, you will reap the rewards.