Consternation is rife as the European Commission delays new financial rules and regulations, writes Jeremy Woolfe

Delays to new financial rules and regulations from Brussels are hardly something new. Being on time would seem to be the exception.  Blame for the notoriety lands on different targets. Perhaps the European Parliament?  More likely in gatherings of member state representations. Or, to be safe, pin the blame on rogue-ish lobbyists! But probable delays caused by the European Commission itself, together with its affiliated authorities? Never!

But now it’s happened. And to MiFID II, the revised Markets in Financial Instruments Directive, the cornerstone of building towards a more efficient, safer financial sector. Europe’s most far-reaching securities reform to date comprises a package laboriously put together in response to the 2009 Pittsburgh G20 meeting, in response to the 2007-08 crisis. The Directive was finally endorsed by the EU leaders in April 2014. It was to be transposed into national legislations by July 2016 and be in force by 3 January 2017. In August 2015, the Commission ruled out notions of delay. Now, it is considering requests for delay.

Hardly surprisingly, consternation in Brussels is rife. The predicament has arisen simply because there are insufficient resources in the authority charged with the task of writing a mountain of pages of interpretative “delegated acts” to the package.

The authority, the Paris-based European Securities and Markets Authority (ESMA), says it needs an extra year. Otherwise, it cannot achieve spelling out highly complex legislative details – the flesh on the bone of the basic package. 

ESMA has to produce both the necessary regulatory technical standards (RTS) and the implementing technical standards (ITS). This is necessary to enable fund management interests, including pension funds, to set up compliance systems in time for the implementation deadline.

The present situation? Pretty clearly revealed in Brussels is that the situation is, simply, “confusion”. The European Parliament has yet to agree to a new programme. Delay for a year acceptable? Delay to be agreed by a period yet to be set? No delay at all? Commentary is varied.

One qualified bystander, Finance Watch, an NGO, has it officially that “MEPs have agreed there is no need to delay the entire package … the entire package should start to apply as planned, on 3 January 2017”.

Conversely, MEP Kay Swinburne appears to accept the delay, possibly of a year. At a Parliamentary committee’s “roasting”, but politely called a “public exchange of views”, the British Conservative stated: “I would prefer us to do it correctly, even if it takes longer.” She is seeking a better model for “the proposed changes to our capital markets”. In fact, she advocates a list of changes.

Sheenagh Gordon-Hart, formerly of JP Morgan and now of 2020 Regulatory Consulting, tells IPE: “We just have to hope the Commission comes up with a sensible [time] framework.”

Financial regulation expert and former regulator Elizabeth Todd at law firm Pinsent Masons said a substantial postponement was unlikely, adding: “What should firms do with this conundrum?” The investment industry, she says, should do what it reasonably can before 3 January 2017, including anticipating any necessary IT systems changes arising as a result of new reporting requirements.

She adds: “We should not expect any changes to agreed policy positions.” It appears any delay would be primarily for the purposes of allowing national regulators and companies to cope with the impact of regulatory change to their systems.

Todd concludes: “Sitting back and waiting for more certainty on delay is not an option. This is now a clear message from the FCA”.

Another commentator raises the spectre that parts of the financial services industry may, actually, be happy about any delay. A muffled giggle in some quarters? 

Overall, what’s at stake? Obviously, a lot. To use words from Ernst & Young, the Directive “will bring about fundamental changes to distribution of wealth and asset management products and services in the EU”.

For instance, it will set up an EU-wide ban on independent financial advisers or discretionary portfolio managers accepting or retaining payments/inducements. Among other upgrades, it would, says the Big Four firm, apply stricter controls on algorithmic trading, and open non-discriminatory access to trading venues and central counterparties.

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