Taking a platform approach: Six steps to recordkeeping compliance under MiFID II and MiFIR

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11 December 2015

MiFID II is intended to address many of the gaps in European capital markets operations and transparency that were exposed in the 2008 financial crisis. Together with MiFIR, MiFID II will introduce broader transparency measures, and operational and compliance requirements aimed at shoring up investor and consumer protection. MiFID II and MiFIR will change the way firms around the world do business with European counterparts —particularly with respect to the scope of data, communications formats and records that must be maintained.

While the implications of the regulations on financial institutions are very broad, they pose unique new requirements in the areas of recordkeeping, trade reconstruction and market abuse prevention.  A new whitepaper, “Preparation for MiFID II and MiFIR: Recordkeeping, Event Reconstruction and Market Abuse Detection in Six Steps,” addresses the challenges firms face when MiFID II goes into effect for these key areas.  It also outlines practical guidance for the steps they must take to manage more data types and handle a materially higher volume of data efficiently.

Among the key recommendations: Firms should take a “platform approach” to recordkeeping, trade reconstruction and market abuse detection as the most reliable, efficient and cost-effective means for demonstrating MiFID II compliance readiness. This approach enables firms to compete effectively in a climate of rigorous client due diligence, while providing evidence of the culture of compliance that regulators demand.

Key steps:

    1. Establish a taskforce and recordkeeping workstream: Draw members of the taskforce from legal, compliance, technology and the business to teach them the distinctions between MiFID and MiFID II that pertain to the firm.
    2. Execute an internal assessment: Assess the firm’s current capabilities in the areas of data capture and management, digital communications, voice, and trade archiving to identify any gaps in the processes and technologies in place.
    3. Document business and technology requirements: Recordkeeping workstream teams should identify system-level impacts and operational refinements that must be made in order to align with MiFID II requirements. They must also develop a recommended implementation schedule and create detailed business requirements for each system and process affected by the new rules.
    4. Develop policies, procedures and testing: Construct new processes, procedures and policies for MiFID II/MiFIR recordkeeping compliance and surveillance in such areas as order handling, execution, order placement and transmission, complaints handling, conflicts of interest and remuneration.
    5. Educate internal stakeholders: Provide an overview for internal stakeholders of the impact of MiFID II/MiFIR trade requirements on the business, operations and systems for recordkeeping and market abuse prevention.
    6. Execute testing and ongoing improvement: Periodically test the new MiFID II/MiFIR policies, processes and procedures to confirm their recordkeeping compliance with the new regulations and the quality of the outputs. In addition, conduct forensic tests to isolate outliers among the data.

Photographer: Joshua Lott/Bloomberg

Taking a holistic approach

Expanded recordkeeping, trade reconstruction and market abuse detection requirements under MiFID II may be daunting. However, firms that approach the challenge holistically and methodically—assessing their readiness, identifying critical gaps and creating a plan of action to close those gaps—can significantly streamline their preparation effort.

And streamlining is critical – given that there is a significant amount of overlap across MiFID II, MAR and DFA.  For global firms with operations in the US and Europe, there is substantial benefit to taking a holistic approach to addressing these regulations, which mandate the retention of records and communications for all services, activities and transactions to enable national regulators to monitor compliance.

By implementing a platform approach to address technology gaps, firms can achieve the high-water mark for MiFID II recordkeeping,trade reconstruction and market abuse detection and install a fully defensible compliance program.

Long-term payoffs

MiFID II is most likely only the first in a series of regulations. Beyond it lie a multitude of buy-side and sell-side directives and regulations that are at various stages. Firms that are able to leverage their MiFID II-compliant platforms, systems and processes and the attendant recordkeeping capabilities for future directives and regulations will be strategically positioned to deliver new and important insights to the front office, allowing senior management to assess and identify risk, support strategic decisions, and provide value to the firm’s stakeholders.

For a detailed look at the six step approach to recordkeeping compliance, download the full MiFID II & MiFIR Recordkeeping whitepaper using the website link above.