Judging from the financial press, you might suppose that this was the year of MiFID II. However, there is the small matter of a general election in the wings, insignificant as that should of course be regarded in these euro-days. But it is the very interaction between the UK and EU which makes the election a focal point for the financial services industry. The outcome will affect our future for many parliaments to come. A Tory-led government will engage in determined re-negotiation; any alternative government will probably go through the motions, while giving way at every opportunity. Surveys tell us that the industry wants to remain in a reformed EU. The electorate will also demand credible reform as the price of its agreement to further decades of EU rule. So the big picture question is ‘What does reform look like?’
You will probably be well aware of the government’s Balance of Competencies Review. Consultations have taken place and, if we find ourselves with a government enthusiastic to pursue the matter, there will be more opportunities to offer answers to the question. This is not about the rule that has been a thorn in the side for many years, it is about structural reform, determining whether regulation for our industry is to be made here under the ultimate control of Parliament, or in Brussels under the control of [insert the name of your favourite eurocrat here]. Everyone can see benefits in a single European market; most can also see massive risks to the financial services industry if it continues under the control of 28 nations, of which 22 have no skin in the game. So far most attempts at answering the question have got bogged down in detail and have failed to see the wood for the trees. There aren’t going to be many bites at this cherry – maybe not even one – so creating and seizing the opportunity is no small matter.
But none of this is to say that we should not be looking forward to MiFID II as well. ESMA obligingly produced this year’s Christmas cracker, setting out its advice on MiFID II Level 2. Consultation finished months ago so now decisions lie with the European Commission. Will it accept ESMA’s bid for unfettered product intervention powers? Will it insist that telephone recordings should be available to clients? Will it buy the waffle around best execution? Or the view of what is ‘complex’? Or the need for disclosure links to all execution venues? Or the disincentives to disclose conflicts? Or the pidgin English and the split infinitives?
Whatever it goes for, it will be left to the FCA to disentangle the assorted requirements, so deftly drafted. To admire the penetrating insight brought to bear by ESMA and soon showing in a rulebook near you, see the ‘analysis’ on product intervention where the stakeholder group pleaded for disclosure of ESMA’s thinking on what kind of investment protection concerns merited summary execution. And imagine their surprise at the response.
Through all of this excitement we must keep in mind that MiFID II will not be truly ours to clasp until 2017. The thought is hard to bear. Fortunately FCA has promised that, just as ESMA’s latest consultation ends, so FCA’s Discussion will begin. FCA proposes to publish a DP in Q1 on structural matters related to COBS (MiFID review – Financial Conduct Authority) while at the same time cunningly avoiding giving the game away in the Policy Development Update. As national competent authorities must have their rules in place by mid-2016, we can be assured that 2015 will be the Year of the MiFID II Consultation.
At the same time it would not be at all fair to forget poor old UCITS. Just because it has been with us for 30 years does not mean that we should take it for granted. After all, it has not been left to get shabby; it is being re-painted now for the fifth and sixth times in quick succession. And the fifth coat must be complete by March 2016, so that means that 2015 will see a little UCITS V consultation as well. The good news is that UCITS V is mainly about bringing the rest of Europe into line on depositary duties, so that is not going to change our lives very much, but there are a few thises and thats that go with it.
And then there was CASS. Those lucky ones that don’t do CASS will wonder what all the fuss is about. Those who have completed the implementation will know what all the fuss is about. Those who are due to tackle CASS implementation between now and June have much to look forward to.
OWL wishes you a very happy and engaged New Year.
Oliver Lodge
January 2015