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What is the biggest challenge that faces banks from meeting the reporting requirements for MiFID II?
Under MiFID II we are seeing an extension of reporting requirements in regards to the product scope as well as the applicability to entity types. Furthermore, we are looking at various different reports, which create complexity for the affected firms in the industry.
Many firms struggle with the fact that they have been brought into the scope of a requirement that they were not used to in the past (especially buy side). All investment firms, basically anyone providing financial services, are caught by the reporting requirements.
Especially smaller buy side firms see the extended product scope of all financial instruments (rather than just Derivatives, for example) as a challenge since it prohibits an avoidance approach. It is sheer impossible to get out of the reporting requirements by adjusting the product offering.
Under transaction reporting requirements specifically, difficulties are created through the size and complexity of the report (65 fields) as well as certain required fields that are new to the industry. For example, the Legal Entity Identifier, the National Client Identifier and the Decision Maker fields are hard to source and fields like the short sell indicator are somewhat ambiguous in definition.
Furthermore, there are various reports to be sent to the regulators, the markets, the venues and the clients which increases the complexity of MiFID II implementation immensely. The most important reporting requirements are as follows:
• Transparency Reporting where firms publish real time information pre- and post- trade onto a platform (Approved Publication Arrangement);
• Transaction Reporting t+1 to the firm’s local regulators (NCAs);
• Quality of Execution Reporting to the firm’s clients and
• MiFID II compliant Order Record Keeping to be made available to the regulator if necessary
• Other reports include data provision to Trading Venues, Reference Data Reporting and Position Limit Reporting
The challenges are mostly around data sourcing externally and internally (where to get ISINs, a list of products traded on a trading venue etc.), around the connection to different providers (Approved Publication Arrangements / Authorized Reporting Mechanisms etc. ) and the dealings with regulatory ambiguities.
Non-EEA firms struggle mostly with the requirement to provide transaction reporting information to EEA venues that they trade with. In this scenario client data will be shared across borders and data will have to be sourced for a requirement that does not directly apply to the firm (Art. 26(5)).
What are the business impacts of the new MIFID II regime?
MiFID II will have large business impacts especially on the investor protection side where we are looking at rules around inducements, product governance, documentation and client classification.
On the trading side we will see a reduction in OTC trading, a focus on EEA markets for products under the trading obligation requirement and generally more stringent control frameworks around business processes and the operation of Market Infrastructures.
How should banks govern their MiFID II project to achieve business as usual by the 2018 deadline?
As the MiFIDII program lead for a large buy side firm, my first piece of advice would be: always act in the spirit of the regulation, make decisions fast and don’t wait for final clarifications, get senior buy in immediately and talk to your peers.
When setting up the program, I suggest to create requirement streams and focus on IT implementation as a first priority (e.g. Transaction Reporting, Best Execution, Transparency reporting etc.). Then create a matrix overlay of cross stream topics such as Data Sourcing, Policy Adjustments, Client Outreach and User Acceptance testing. Finally, ensure that the governance is strong in all necessary areas of the bank – MiFIDII needs a presence Front, Risk, IT, Operations and Product Steering Committees. It literally touches the entire bank.
What would you like to achieve by attending the 2nd Annual Best Execution and Transparency under MiFID II?
I am looking forward to having some good discussions and fruitful exchange with our industry peers.
Under MiFID II we are seeing an extension of reporting requirements in regards to the product scope as well as the applicability to entity types. Furthermore, we are looking at various different reports, which create complexity for the affected firms in the industry.
Many firms struggle with the fact that they have been brought into the scope of a requirement that they were not used to in the past (especially buy side). All investment firms, basically anyone providing financial services, are caught by the reporting requirements.
Especially smaller buy side firms see the extended product scope of all financial instruments (rather than just Derivatives, for example) as a challenge since it prohibits an avoidance approach. It is sheer impossible to get out of the reporting requirements by adjusting the product offering.
Under transaction reporting requirements specifically, difficulties are created through the size and complexity of the report (65 fields) as well as certain required fields that are new to the industry. For example, the Legal Entity Identifier, the National Client Identifier and the Decision Maker fields are hard to source and fields like the short sell indicator are somewhat ambiguous in definition.
Furthermore, there are various reports to be sent to the regulators, the markets, the venues and the clients which increases the complexity of MiFID II implementation immensely. The most important reporting requirements are as follows:
• Transparency Reporting where firms publish real time information pre- and post- trade onto a platform (Approved Publication Arrangement);
• Transaction Reporting t+1 to the firm’s local regulators (NCAs);
• Quality of Execution Reporting to the firm’s clients and
• MiFID II compliant Order Record Keeping to be made available to the regulator if necessary
• Other reports include data provision to Trading Venues, Reference Data Reporting and Position Limit Reporting
The challenges are mostly around data sourcing externally and internally (where to get ISINs, a list of products traded on a trading venue etc.), around the connection to different providers (Approved Publication Arrangements / Authorized Reporting Mechanisms etc. ) and the dealings with regulatory ambiguities.
Non-EEA firms struggle mostly with the requirement to provide transaction reporting information to EEA venues that they trade with. In this scenario client data will be shared across borders and data will have to be sourced for a requirement that does not directly apply to the firm (Art. 26(5)).
What are the business impacts of the new MIFID II regime?
MiFID II will have large business impacts especially on the investor protection side where we are looking at rules around inducements, product governance, documentation and client classification.
On the trading side we will see a reduction in OTC trading, a focus on EEA markets for products under the trading obligation requirement and generally more stringent control frameworks around business processes and the operation of Market Infrastructures.
How should banks govern their MiFID II project to achieve business as usual by the 2018 deadline?
As the MiFIDII program lead for a large buy side firm, my first piece of advice would be: always act in the spirit of the regulation, make decisions fast and don’t wait for final clarifications, get senior buy in immediately and talk to your peers.
When setting up the program, I suggest to create requirement streams and focus on IT implementation as a first priority (e.g. Transaction Reporting, Best Execution, Transparency reporting etc.). Then create a matrix overlay of cross stream topics such as Data Sourcing, Policy Adjustments, Client Outreach and User Acceptance testing. Finally, ensure that the governance is strong in all necessary areas of the bank – MiFIDII needs a presence Front, Risk, IT, Operations and Product Steering Committees. It literally touches the entire bank.
What would you like to achieve by attending the 2nd Annual Best Execution and Transparency under MiFID II?
I am looking forward to having some good discussions and fruitful exchange with our industry peers.
Ahead of the 2nd Annual Best Execution and Transparency under MiFID II conference, we spoke with Beate Born, Global MiFID II Project Lead at UBS about the challenges that banks are facing from meeting MiFID II requirements.
About the conference:
This meeting is designed to show firms the final steps firms are taking to meet the best execution and pre a post trade transparency requirements. It will address how firms have overcome challenges in decision making to define trading venues and systematic internalisers, but also data challenges relating to regulatory and client reporting and monitoring best execution. The meeting will present case studies from firms that are edging towards completion of the MiFID II project as they finish the building and testing phase of their algorithms, addressing specifics such as how they structured their firm and how the FCA thematic rules helped, finally addressing the business implications of the MiFID II regime. The 2nd Annual Best Execution and Transparency under MiFID II conference, will take place on 20th -22nd of September 2017 in London, UK.
Copyright © 2017 Marcus Evans. All rights reserved.
Previous Attendees Include
- ABN Amro Bank
- AFME
- BNP Paribas
- Central Bank of Ireland
- Citi
- Commerzbank
- Deutsche Bank
- Erste Group
- HSBC
- Investment Management Association
- National Bank of Abu Dhabi
- Netherlands Authority for Financial Markets
- RBS
About the speaker:
Beate Born currently leads the global MiFID II Trading Program centrally and across 10 UBS Wealth Management entities. She has 12 years of experience in the financial services industry in Switzerland, Europe and Asia with a focus on regulatory implementation and program management. Amongst other positions, Beate worked as a consultant for Malik Management Zentrum St. Gallen, had her own regulatory implementation practice and now leads the MiFIDII Team within Business Risk & Regulatory Management at UBS Switzerland AG. Degrees include an MBA from Clark University, a DESS from the Sorbonne and an executive diploma from the Swiss Finance Institute.
Practicalities of implementing Best Execution and Transparency obligations
An interview with the Global MiFID II project Lead at UBS
Beate Born
Global MiFID II Project Lead at UBS
Practical Insights From:
-
Mark Armstrong
Head of CIB European and Legal Advisory
BNP Paribas -
Werner Schorn
Head of CIB European and Legal Advisory
Erste Group -
Bas Dommerholt
Supervision Officer
AFM
