MiFID II’s final rules (i.e. delegated acts) which address a wide range of financial market topics including how asset managers can pay for investment research were expected to be released by the end of January, 2016. However, according to an article in Financial News, a proposed EU timetable now reveals that most of these new delegated acts will not be published until March, at the earliest.
Delegate Acts vs Technical Standards
A proposed timetable produced by the EU Commission’s Directorate General for Financial Stability, Financial Services and Capital Markets now reveals that MiFID II’s final delegated acts will not be released until March.
Once the delegated acts have been produced, they will need to be accepted by EU Parliament and the EU’s Council of Ministers. This process typically takes 3 months, but could be delayed if further review is warranted.
However, this is not the only part of the new MiFID II rules which need to be approved. In September, 2015 ESMA published a detailed set of regulatory technical standards associated with the new MiFID II framework. These standards are currently under review by the EU Commission, and are expected to be approved some time in February. It must be noted that the Commission could revise the previously published standards if it chooses.
Of course, given all these delays in publishing and passing the delegated acts and regulatory technical standards have left both the buy-side and sell-side in a bit of a quandary as they know that significant changes are pending – but they are not yet sure exactly what they will need to do to implement these changes.
Last October, ESMA wrote to the Commission stating that the delays in passing the final MiFID II rules would make it impossible for most fund managers to implement these new rules on January 1, 2017 as was originally proposed. Since then, most EU lawmakers have expressed their support for a delay in the final implementation date – with many suggesting a 12 month delay as being appropriate.
However, a few weeks ago, ESMA’s Chairman, Steven Maijoor, was publically quoted saying that a 12-month delay may not be long enough, particularly if MiFid II’s regulatory technical standards continue to be delayed.
Maijoor explained, “The final making of these IT systems can only really start once these technical standards are finally set, and that requires that these are endorsed by the Commission and also accepted by the Parliament and Council. If that process is lengthened too much, then a year might not be sufficient.”
The delays in approving MiFID II’s final delegated acts and technical standards will also have an impact on Europe’s national regulatory bodies that will be required to turn these standards into national law by June 2016.
Many in the marketplace breathed a collective sigh of relief last December when a leaked copy of MiFID II’s delegated acts suggested that asset managers would be able to continue to use commission sharing agreements to pay for sell-side and independent research. However, the continued delay in the delegated acts has placed many market participants on hold because of fears of last minute changes.
The rumor in London is that one reason for the delay is that the EU is considering exempting fixed income research from the inducements provisions given the difficulty in implementing research payment accounts in fixed income markets. There is also speculation that the implementation date for MiFID may pushed back further, to mid-2018.