Anyone with even a passing interest in financial regulation knows that it can take time, usually a very long time indeed.
It can take years to get from the point where there is a realisation that existing regulation is insufficient to the day when the rules have been implemented and the industry has a clear and detailed understanding of their implications. Sometimes it can take the best part of a decade.
The first consultations on reforming European financial markets began in 2000, seven years before MiFID’s implementation in November 2007, only to be followed by MiFID II in early 2010.
This means market participants had barely got used to MiFID before its review was announced, meaning the industry has essentially been working on this particular round of regulatory reform for 14 years already.
With MiFID II’s first consultation papers of its level two implementation phased published in May, the industry might hope that this lengthy process is now drawing to a close. However, the European Securities and Markets Authority (ESMA) has stated this is only the first step, and at least one follow-up consultation is due at the end of this year or early next, with the regulator expecting to implement MiFID II in late 2016.
However, my conversations with various trade associations this week, working together on MiFID as part of the Joint Trade Association Group (JTAG), have revealed even this very lengthy schedule, may be overly ambitious.
Some JTAG members are expecting ESMA’s timetable to slip to mid-2017 at least and it’s entirely possible that MiFID II may not be implemented until 2018 given the complexity of many of the issues involved.
Particularly difficult areas include open access to derivatives central counterparties, developing a consolidated tape for European equities and rules to define high-frequency trading and limits to the way it operates.
Furthermore, some industry groups have said that many of the questions being asked by ESMA in its current papers don’t quite get to the root of the issues, such as around how the equity trading obligation will determine whether trades are done on regulated venues or systematic internalisers. Others are simply missing altogether, meaning at least one additional consultation or discussion paper may be needed to iron out these issues before draft regulatory technical standards are produced.
So, both the industry and ESMA are faced with a difficult balancing act. While no one wants regulatory reform to be rushed and end up with inadequate rules that could eventually result in the need for a MiFID III, they also don’t want the prospect of another four years of regulatory uncertainty and the increasing apathy towards regulation that could generate.
For this reason, initiatives like JTAG - which is splitting responsibility for responding to various aspects of MiFID among Europe’s various trade bodies to both speed up and coordinate responses – should not only be welcomed, but also used more frequently to help ensure regulation is introduced both quickly and effectively.