A great number of EU financial firms will have been relieved to learn of the recent delay in the implementation of MiFID II. Pressured by Competent Authorities across Europe,The Commission has pushed the implementation date back by 12 months to January 3rd 2018.

What is MiFID II?

The Markets in Financial Instruments Directive (MiFID) seeks to bring efficiencies to EU markets to ensure competitiveness, while offering new levels of investor protection. The 2008 financial crisis exposed significant weakness in the original MiFID, which have been addressed in the extensive new MiFID II legislation.

MiFID II sees tightening of the rules on Dark Pool, Algorithmic and High Frequency Trading as well as extensive increases in transparency, disclosure and reporting obligations for firms and market operators. The legislation now covers an increased array of financial instruments (including non-equity and ‘equity like’ instruments) and has more robust rules on investor protection and product production.

What is the reason for the delay?

The Commission has been very clear that the reasoning behind the delay is the gargantuan scale and complexity of technical implementation for Competent Authorities. Reading between the lines,there is an important message for EU firms that fall under the remit of MiFIDII – the legislation is complex, far reaching and will require significant attention and appropriate resource. We see many of these themes replicated across much of global regulation today.

What does the delay mean for firms?

Many firms will, of course, see the delay as a good opportunity to spend more time addressing the numerous small but disproportionately impactful changes that MiFID II will bring to their day to day business. The expansive nature of the legislation means that firms will have to commit more resource to managing this process. Many other firms will equally likely see this as another opportunity to do nothing and ‘wait and see’. ‘Perhaps it will be delayed again’ and ‘We have lots of other things we can be doing with our time’ are the siren calls. This is not a strategy we would recommend.

Those with a proactive approach will see the delay as a golden opportunity to ensure and robustly test their compliance prior to the revised implementation date. For many firms this will mean engaging third parties to assess their readiness.

With firms all across Europe being granted the same extension, one unwritten consequence of the delay is a feeling across the industry that there is now less of an excuse for those that fail to ensure that they are adequately prepared. MiFID II brings with it new regulatory intervention powers and the ability to sanction firms that pose a threat to market and/or investor stability. Firms with a less than laissez-faire attitude to risk will be keen to avoid rousing the ire of the regulators in this regard.

January 3rd 2018 will see a significantly different operating environment for many firms across the EU. It would be unwise for firms to see the delay as an opportunity to reduce the rate of preparation or diminish resources that they have committed to MiFID II. Ultimately a 12 month stay of execution is only delaying the inevitable – the underprepared will eventually feel the swing of MiFID IIs regulatory axe.