As discussed in last week’s Corporate & Financial Weekly Digest, on November 18, the European Securities and Markets Authority (ESMA) published a note relating to delays in the “go-live date” of certain Markets in Financial Instruments Directive (MiFID II) provisions. The note was published at the request of members of the European Parliament and expands upon the analysis currently being undertaken at the European Commission (EC), European Parliament and European Council of Ministers as to whether or not MiFID II implementaiton should be delayed.
The note addresses:
- the identification of possible delays in the expected real applicability of certain MiFID II provisions, especially those related to the development of information technology systems (by both regulators and market participants) that need to interact;
- the reasons why those delays are hard to eliminate or manage; and
- the possible alternatives for how to tackle them, in a coordinated EU manner.
The note explains that the legal timeframe for MiFID II implementation also is delayed because ESMA published regulatory technical standards (RTS) and implementing technical standards (ITS) on September 28. The EC now has until January 28, 2016 to indicate if it will endorse the RTS/ITS. The European Parliament and the Council then have between one and six months to exercise their right of objection. As a result, even assuming only a one-month objection period, it is unlikely that the RTS and ITS will be finalized and published in the Official Journal of the European Union before March 2016. When considering that MiFID II (and the associated Markets in Financial Instruments Regulation (MiFIR)) is set to come into effect on January 3, 2017, the above timeline leaves less than nine months to finalize business requirements and develop, program, test and deploy the systems needed for the MiFID II implementation. For the most complex systems, ESMA comments this is insufficient:
The possibility of a delay is, in some cases, already a certainty. The current state of the final rules and the expected publication time prevent the different parties to start working with the necessary certainty and we are already past the point of no return after which the launch of the system into production in January 2017 becomes unfeasible.
ESMA notes that the options for resetting the January 3, 2017 date are as follows:
- Level 1 fix – ESMA believes that postponing the application date of some articles for a few months is the best option in terms of legal certainty and synchronicity. This was the method used to delay implementaion of MiFID I originally when some articles were postponed for a few months.
- Level 2 fix – This achieves similar results as a Level 1 fix (i.e., legal certainty and synchronicity), but this solution requires fixing the applicability date, due to duly justified technical reasons, at a later moment than the applicability date of Level 1. ESMA notes that it is not a solution for transaction reporting and does not solve the problem of a legal vacuum, which puts at risk the enforceability of some key provisions.
- Level 3 fix – This would consist of an agreement between all EU regulators on an implementation date that would be later than the one contained on the RTS/ITS.
ESMA’s preference is for a Level 1 fix.
The full text of the note is available here.