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Firms Tackle MiFID II Challenges at Bloomberg Event in London

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20 October 2015

With less than 15 months remaining to implement MiFID II—the European Union’s all-encompassing set of regulations—financial services firms are under the gun to formulate a plan to meet the guidelines, particularly those related to record-keeping of communications, voice recording, and trade reconstruction.

Bloomberg recently hosted an event in London attended by more than 230 financial services professionals. The agenda focused on key challenges presented by the regulations, including record-keeping, next-generation surveillance, best execution, liquidity analysis, research and regulatory reporting—areas that are proving to be a test of firms’ current capabilities.

In an event survey, only 7% of attendees said their firm was ready to meet the requirements, while nearly 50% of respondents said that their firms are only now in the process of formulating a plan and willnot be prepared to implement by the January 2017 deadline.

According to Harald Collet, Global Head of Bloomberg Vault, “Due to the immense scope of MiFID II, and the fact that not all rules have been finalized, meeting the January 2017 implementation deadline will be a challenge for many firms. But, despite uncertainty, firms can still begin tackling the rules that are relatively straightforward and unlikely to change such as record-keeping and market abuse prevention mandates.”

The record-keeping requirements of MiFID II present a significant undertaking for many firms, but MiFID II is very clear on what needs to be done.  Firms are required to adhere to:

  • Record-keeping: comprehensive and accurate records must be captured, including all voice recordings of telephone conversations, minutes from in-person meetings, e-communications (such as email, instant messaging and fax) related to the reception, transmission or execution of any trade.
  • “Readily available”: MiFID II mandates that records be readily available for search, analysis and retrieval upon request from the local regulator (NCA).
  • Reconstructing records by events: records must also be categorized by transaction and by counterparty. This requirement introduces additional complexity into how each record is captured and tagged. For example, regulators can request all the communications for a trade or a counterparty.
  • Retention: records kept in accordance with Article 16(7) must be available to clients for a minimum of five years; for regulators, up to seven years.
  • Storage: records must be maintained in a durable medium, such as Write-Once-Read Many (WORM), that cannot be altered or deleted but must be searchable and readily available upon request. 

Photographer: Akos Stiller/Bloomberg

Many firms are looking for a silver lining when investing in compliance solutions—MiFID II record-keeping requirements represent an opportunity. Indeed, 67% of those surveyed at the event in London noted that their compliance managers must currently rely on manual, labor-intensive procedures to fulfill supervisory tasks and perform enforcement actions, while 20% said their companies had no standard procedures at all. This mandate provides an opportunity to automate labor-intensive manual processes.

On another positive note, 82% of those surveyed said earlier investments to comply with other regulatory directives such as Volcker, Dodd-Frank Act and EMIR have accelerated their abilities to respond to MiFID II.

Other key challenges cited by those participating in the survey included:

  • Talent shortage: high demand and tighter supply of legal/compliance and tech talent are slowing the efforts of many firms.
  • Technology rollout and adoption: many are working to find the right solutions, in particular with regard to the changes in pre-trade transparency requirements.
  • Understanding the details: finding a way to understand the nuances of these requirements and implementing effective procedures to disaggregate the data will be a high priority.
  • Time-clock synchronization: firms with global operations may have difficulty with the requirement for clock synchronization in the markets.
  • Data volume: the massive amount of records generated is resulting in many firms struggling to process and retain records.
  • Engagement with regulators: most firms had encountered pushback from officials when they asked for greater clarity.
  • Resolving conflict laws: global firms will have to reconcile differences between financial regulation and local laws in Europe, e.g., privacy laws.

As the implementation deadline comes ever-closer, firms must proactively assess how new technology can help them support a regulation-ready data-governance strategy.

The most proactive firms will use MiFID II to compete more effectively in a transformed industry.

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