Big Data Technology for Investor Protection

MIFID II Firsthand interpretation

L'AGEFI: Wednesday, August 12th 2015

MIFID II. The European Parliament is organizing a workshop of ten sessions for executives of banks at the invitation of cfinancials to help facilitate their implementation of the new Directive.

Interactions between the legislature and those required to implement laws are often one way. In many cases, it is left to the courts to determine how they should finally be interpreted. Here, a new approach will be taken at the outset of the implementation of the European Directive MiFID II. At the invitation of cfinancials, based in Rolle, 14 first class financial institutions will be represented by their head of legal and regulatory affairs and / or compliance at group level during a workshop of ten sessions to be held in the European Parliament in Brussels. The 22 delegates represent more than 2 million employees and collective profits of EUR50 billion. Now for the first time, they will receive first-hand information by the legislature concerning the interpretation of MiFID II.

The new Directive and the regulations relating to it amount to "only" 213 pages. However, when taking into account MiFID II in its entirety, the founder and executive chairman of cfinancials Michael Heijmeijer indicates that the estimations as per Markus Ferber, responsible for MiFID II at the European Parliament is more around 6'000 pages with an implementation period starting in September and should be done by January 2017. With all the possible interpretations, the probability of a misinterpretation is real even when institutions do everything they can to do it right. Banks today face class action lawsuits on a misinterpretation of MiFID I and that with an implementation done on a best effort basis. MiFID I is far less complex and significant than MiFID II.  To date, processes of this kind have been a source of frustration on both sides. Everyone would like to implement it exactly, but it is difficult for organisations to know if they have done so, he said. It is challenging to apply the Directive exactly as the legislator intended, as there are too many middlemen.  Hence the idea to establish a direct contact between legislators and industry. Through these workshops, those who created laws can say how to interpret them and what to do.

A lot of ground has been covered since the first version of the European directive on financial instruments markets, MiFID I came into force in 2004. New players, products and trading techniques have emerged, demanding a response from the regulator. The time to implement the new rules is relatively short (18 months ) - Markus Ferber of the European Parliament has supported the organization of this workshop . MiFID II will have a huge impact on financial markets, but the first priority is that it reaches its goal in terms of compliance. Therefore, it is essential to exchange views on key areas at an early stage , in order to grasp the magnitude of the changes ahead, he explains.

The ten sessions, to be held in five blocks between September and November 2015, are intended to be interactive. Interviews with participants also helped to refine the choice of subjects at these meetings, which could also extend well beyond those currently planned. As the provisions of MiFID II have been finalized, discussions will not have any impact on this issue then. Future versions could, however, be inspired. Not being on the ground every day, it is difficult for parliamentarians to assess the impact that product regulation has or what is at stake. It is also an opportunity for the industry to suggest improvements in the process notes Michael Heijmeijer. While stressing that the new obligations in terms of documentation is on financial products, it will also help to evaluate customer needs in terms of matching products to their risk profile and objectives, and influence the choice made. This will improve transparency for clients, and also serve to protect the bank. Once the bank has informed customers of the risks related to a product and the consequences this could have, it is less likely to be blamed for decisions taken by the customer.

Themes that recall the discussions on the draft of the new law on financial services (LSFin), the consultation process is completed, the Federal Council's message is expected by the end of this year. It is hardly a coincidence, mutual recognition of equivalence of regulatory systems in order to facilitate such cross-border distribution of financial products is one of the objectives of the new legal framework which is prepared in Switzerland. The Swiss institutions active in the European Union are anyway directly affected by MiFID II. For others, follow this issue closely is a way to anticipate future changes in Switzerland.