Multiple sources with knowledge of the matter have confirmed to Finance Magnates that the implementation of MiFID II is off to a messy start. Firms across a wide range of the participants in the regulatory reporting process are experiencing difficulties. Debates about whether retail brokers are required to report forex transactions or not are raging – some have chosen a safe path and are including the asset class on their sheets.
Finance Magnates can confirm that various issues have been making life difficult for all parties involved in the reporting process. Starting with the regulators and the Approved Reporting Mechanisms (ARMs) through to the companies that are ill-prepared and still not sure which trades must be reported, no party can be wholly blamed for the complicated situation in which the financial services industry finds itself in the aftermath of the MiFID II implementation.
Fragmentation across the continent is yielding a challenging operating environment for firms that on numerous occasions are required to submit their reports via different means. To illustrate this point: some regulators in the EU are currently accepting daily reports via email due to the operational challenges experienced with automated processes.
The MiFID II regulatory framework was delayed for a full year, but apparently the period has not been enough for all the parties involved to ensure a smooth transition to the new regime. Starting from November, National Competent Authorities (NCAs) opened up their testing environments for the use of ARMs.
During this brief window, while some issues have been identified, the limited time until the official launch on the 3rd of January did not allow for technical fixes. At present ARMs are struggling with providing to their clients a unified reporting system.
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At present, the UK FCA, German BaFIN, and French AMF appear to be the only venues that are operating relatively smoothly. Other national regulators have been lagging behind, with CySEC lacking integration with ARMs. Sources have shared with Finance Magnates that despite this, any submission that is made with an ARM and is validated is considered to comply with MiFIR.
System outages at regulators and ARMs have been the norm since the implementation date of MiFID II. Starting from the 3rd of January, the FCA was the first regulator to register an issue with MiFIR transaction reports. While some regulators are receiving reports, they cannot process them. On their part, the firms which are submitting them cannot confirm whether they are in full compliance until the NCAs issue their opinions.
Some of the ARMs that are servicing the reporting process have experience bugs of their own due to the move from a testing environment to a live report submission. As a result, some trades that were previously getting approved are now being rejected without any confirmation of the reasons for those rejections.
“One Big Mess”
One of the sources that Finance Magnates spoke to stated that the whole process is “one big mess”. While the ARMs and the regulators are probably all equally at fault, participants in the process are not singling out a particular player in the market as the main culprit.
At present, ARMs and NCAs are not fully synced with their rules engines and trades that are getting reported and approved from any ARM can still get a rejection from the NCA.
There is little doubt among market participants that the whole process has been negatively impacted by the tight deadlines imposed by European authorities. Currently, all parties involved are putting in extra effort to ensure compliance. Despite all the challenges that regulators and firms are going through, the implementation of MiFID II cannot and will not be reversed.