MiFID II Level 2 Investor protection matters

Bovill briefing 15th July 2015 – Leeds

Mark Spiers and Neil Walkling

MiFID I

“MIFID is a ground-breaking piece of

legislation. It will transform the landscape for

the trading of securities and introduce much

needed competition and efficiency.

…Last but not least, investors gain in terms

of greater choice and stronger protection.” Commissioner Charlie McCreevy – 2007

MiFID II

"These new rules will improve the way capital

markets function to the benefit of the real

economy. They are a key step towards

establishing a safer, more open and more

responsible financial system." Commissioner Michel Barnier – 2014

Outgrown MiFID I

2

Making markets more robust

3

MiFID II aims to:

make financial markets more robust and

efficient

take account of technological developments

since MiFID I

increase transparency of both equity and

non-equity markets

introduce a stricter framework for commodity

derivatives markets

reinforce supervisory powers

strengthen investor protection.

Understanding the levels of detail

4

Level 1 – Framework Legislation

• Delegated and Implementing Acts

Level 2 – Implementing Measures

• Implementing Technical Standards and Regulatory Technical Standards

Level 2.5 – Technical Standards

• ESMA issue non-binding guidance on the meaning of the Levels 1 and 2

• National regulators comply or explain

Level 3 – Regulatory convergence

• Enforcement action by EC for failure to implement or inconsistent implementation

Level 4 – Enforcement of Directive

Recast MiFID

MiFIR MiFID

II

MiFID II timeline

5

2014 2015 2016

Leg

isla

tio

n

Level One entry into force

2.7.14

National Transposition

Due 3/7/16

MiFID II

applies

3/1/17

ESMA Level Two Advice to EC

19/12/14

RTS to EC Due 03/07/15

ITS to EC Due 3.1.16

FCA Discussion Paper

26.3.15

FCA Consultation Paper

Due 12.15

Level Two published in OJ

due 3.1.16

you

are

here

What is in MiFID II?

6

MiFID (Directive)

Scope – Exemptions and Definitions

Authorisation

Corporate Governance

Conflicts of Interest

Inducements and Commissions

Client Categorisation

Product Governance

Best Execution

Algorithmic Trading

Passporting

Third Country Firms – Branch

MiFIR (Regulation)

Third Country Firms – Cross Border

Pre and Post Trade Transparency

Trading Obligations

Consolidated Tape

Transaction Reporting

Product Intervention

Telephone recording

Information to clients

Reporting Client

Agreements

Appropriateness Suitability

Fair, Clear and not Misleading Remuneration

Conflicts Product Governance

Record Keeping

Complaints

Advice

Client Assets

The investor protection hopper

7

Compliance

Inducements

Strengthened investor protection

Underwriting and Placing

ECPs Best Execution

Client Order Handling

Product Intervention

Key themes – investor protection

Retail standards being applied to

professional clients Board sign off

Senior management oversight

Role of compliance

Disclosure

8

Direct

• Transaction Reporting

• Commodity Derivatives

• High Frequency and Algo Trading

Indirect

• On exchange derivatives trading

• Pre and post-trade transparency

Market matters for buy-side firms

9

“The devil is in the detail”

• Senior management responsibility

• Proper project governance

• Gaps must be owned by the business

not compliance

• Robust tracking of compliance

• Expect questions from clients and

regulators

Learning from MiFID I

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Management and business buy-in

• MiFID II is something you have to do yourself, not

something that can be done to you by consultants.

• You and the whole business must be prepared to

embrace the change.

• Senior Management must support achieving

compliance.

Clear objectives and deliverables

• Each action needs to be clearly articulated.

• Clear understanding of what is compliance.

• Ownership

• Excellent reporting

Critical success factors

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• What rules apply to my business?

• Have they changed from MIFID I?

• If so, do I need to take action?

• If I do need to take action, what

exactly do I need to do, and

what is the effort needed?

• Who do I need to engage

with, when and how?

Approaching your project line by line

12

There is a lot of content in MiFID II

Don’t wait for FCA rules or even the final EU legislation

START PLANNING FOR MiFID II NOW!

Have you started yet?

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• read

• ascertain gaps

• develop solutions

• identify opportunities

Analysis and

planning

• change

• test

• train

• client contact

Implement

Yo

ur

pro

ject

Questions?

14