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European Commission considers delay to elements of MiFiD II

The European Commission is considering a request for some delay on the reporting requirements due to come into effect under the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR), according to reports. 12 Nov 2015

MiFID II and MiFIR are due to come into force in January 2017. However, European Commission official Martin Merlin told MEPs this week that a delay was needed "if we want to have a smooth and effective implementation", Reuters reported.

"The simplest and most legally sound approach would be to delay the whole package by one year," Merlin said, according to Reuters.

Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), told the European Parliament's Committee on Economic and Monetary Affairs (ECON) that it was now "unfeasible" to meet the timetable for many of the reporting requirements due to the difficulty investment firms face in adapting their IT systems in time.

"The building of some complex IT systems can only really take off when the final details are firmly set … and some of the most complex IT systems would need at least a year to be built," Maijoor said. "We have therefore raised these timing issues with the European Commission, and the fact that some IT systems will not be ready in January 2017, and the uncertainty this will create as they are needed for the execution of certain elements of MIFID II."

Financial regulation expert Elizabeth Todd of Pinsent Masons, the law firm behind Out-Law.com said that a substantial postponement is unlikely.

Todd, who previously worked as EU senior counsel with the Financial Conduct Authority and was a member of ESMA's Investment Management Standing Committee said: "There are quite a few conflicting stories about what a delay could or should look like. But the political reality is that the MiFID IIlegislative package will mostly stay ‘locked down’; it took three hard years to negotiate, concluding in May 2014 with some hard fought compromises on significant differences of approach between the European Parliament, Commission and Member States. Opening up the framework legislation, even slightly, risks destabilising the entire project," Todd said.

"The two ‘hard’ deadlines for implementation are set in stone: 3 July 2016 for member states to do their piece, and 3 January 2017 when the MiFID single rulebook, the enormous volume of implementing measures, will take effect. At this point industry and national regulators must be ready. ESMA has done well to deliver so much technical advice and draft standards to the Commission, but ESMA chairman Steven Maijoor has formally acknowledged to the Commission and now also ECON that some flexibility is needed given the significant operational and IT systems impacts of the rules on transparency and transaction and position reporting which are still being developed," she said.

"Firms’ IT systems need to be changed, and those of ESMA and national regulators further developed to absorb and interpret the considerable data that firms will need to report. This challenge arose with the new regulatory capital requirements in 2014 and the Alternative Investment Fund Managers Directive (AIFMD), both of which had shorter lead times, and pragmatic solutions were found," Todd said.

"What should firms do with this conundrum? While we should not expect any changes to agreed policy positions, it does appear that any delay or flexibility would be primarily for the purposes of allowing national regulators and firms to implement the necessary IT systems changes. The Commission is now showing some understanding of the difficulties everyone is in. Whatever flexibility or delay is agreed for the reporting requirements, however, there will still be a sizeable number of other requirements to comply with come January 2017.Sitting back and waiting for more certainty on delay is not an option," she said.