- Firms overstretched by flood of regulation
- MiFID II approaches its climax
- SMCR emerges early as FCA priority
- Director of Supervision presses for further action
It is often said that regulated firms face many demands. Seldom is that as true as it is at this moment. MiFID II is the main focus for most, but so much more awaits attention that there is something approaching a sense of panic in the air. The feeling is that events, statements and policy publications are flooding in, and flowing on, unabsorbed. Steady! It is time to take a calm look at what is on the table and to determine priorities.
It is not possible to generalise about firms’ priorities; every firm is unique and is affected in different ways by different measures. But there are common factors that affect wide swathes of firms.
Every firm will already know how MiFID II applies to it. Key decisions follow and, from there, onwards to design and build. All aimed at the January deadline. A huge exercise for most, utilising every available resource and at risk of diverting attention from other commitments.
Comforting as it undoubtedly is to read the comments of FCA’s Megan Butler, reiterating Mark Steward’s earlier remark that the regulator has no intention of taking enforcement action against firms for not meeting all MiFID II requirements straight away, we have to note that those comments were significantly qualified with pointed references to having taken “sufficient steps to meet the new obligations.” But, as ever, ‘sufficient’ goes undefined. The temptation to put too much reliance on this forbearance needs to be resisted. The sprint for the line should begin now.
Meanwhile, Megan helpfully reminded us of those other tasks and duties that must not be neglected. She pointed out that:
“we do expect firms to submit Suspicious Transaction and Order Reports to us – in line with their obligations under the Market Abuse Regime….. we expect you to make sure your systems and controls are deterring market abuse.”
She further mentioned:
“legal entities that want to trade under MiFID II will need a legal entity identifier….. make sure your underlying clients are aware of the deadline and are making plans to get an LEI.”
She also dwelt on the Asset Management Market Study and on SMCR. Although the first AMMS consultation is now closed, another will be along shortly, covering particularly the vexed matter of all-in fees. On SMCR, firms are encouraged to respond to the consultation (CP17/25). But the CP can also be a valuable training tool for getting across the message that the regulator’s focus is moving fast from firms to managers and indeed to all staff. How many are aware that FCA will have the power to penalise all non-ancillary staff?
Then she moved on to the main course: the five ‘basic conduct questions’.
What proactive steps do you take to identify conduct risks in your business?
How do you encourage people in front, middle, back office, control and support functions to feel responsible for managing conduct?
What support do you put in place to help your people improve the conduct of their business or function?
How do your board and executive committee get oversight of conduct in your organisation? And how do you bring it into your discussions?
Have you looked at whether there are any business activities you’re engaged in that undermine your work to improve conduct?
These are not questions to be recited in the bath, they need time and focus in addressing them right across the firm. Will you integrate them with your SMCR training?
Noticeably though, this time she made no direct reference to best execution, albeit that it is an integral aspect of MiFID II. But we do not believe that no mention means no further interest. The emphasis on best execution earlier in the year is not going to be ignored by supervisors – and nor should it be by the industry. They will be back for more.
With all of this, some firms will cope in-house. More commonly, resources designed for BAU will be overstretched and need reinforcement from knowledgeable and experienced regulatory experts.