News

Dec21

Commission Causes Chaos with MiFID Muddle

Although implementation of MiFID II will now be delayed for a year to 2018, like a reliable and faithful hound, the FCA has fulfilled its promise and perceived obligation by publishing its first MiFID II Consultation Paper on time. With the FCA, you always know where you stand. It does what it says on the tin, and it expects others to do the same. Much of its time is spent tackling the failings of those who do not. When the industry fails to live up to their promise, it is taken to task. When the European Commission fails to live up to its promise, the industry is destabilised through uncertainty. Apart from a feeble jibe from the European Parliament, nobody takes the European Commission to task. That is the way of today’s world – it needs reform.

In among the turgid material of the CP lies one small nugget. Despite its previous gold-plating of MiFID, applying transaction reporting to managers of all portfolios, whether covered by MiFID or not, FCA has now decided that the continued cost of that application to anyone who is not expressly caught by the amended requirements set out in MiFIR cannot be justified. Many of us had understood for some years that transaction reports were a main-stay of the anti-market abuse regime, without which nailing criminals would be significantly hindered. It seems not. Now we know that the cost outweighs the benefit. A sensible regulator would only apply the regime where it was obliged to do so. What that says about the CBA carried out by the Commission when writing and re-writing MiFID, is an interesting question.

Whatever the glimpses of blue sky in the CP have to offer, few of the clouds in between are so dense or depressing as the description of the process for granting waivers for trade reporting. Before FCA can provide a single waiver, it must notify all other EU regulators, notify ESMA, provide an explanation of the waiver’s function and await ESMA’s opinion; and all of this four months before the waiver is implemented. CBA on that would make interesting reading indeed.

 

The astonishing dullness of CP15/43 is an unwelcome indicator of the absence of the key Level 2 material from the Commission. Still required to change the regulations by mid-2016, the FCA had no option but to start consulting now with only six months to go, despite knowing that the cards have not yet been fully dealt. The promised second consultation in H1 of the New Year will include more interesting material. But unless the timeframe changes, there will not be adequate time to consult and feedback properly, so the process and outcome are now compromised. Most people will think it bizarre that delay in implementation is contemplated without any certainty that transposition will also be delayed. Most would suppose that a Commission that was incapable of performing its part in the drama would have sufficient contrition and self-awareness to concede that its failures had a significant effect on an important industry and that every possible mitigating step should be taken to minimise the impact of its incompetence. Indeed most might. But then that would be to display a poor understanding of the character of EU institutions.

 

Posted in: FCA, MiFID
Tagged in: , , ,
Nov12

MiFID II Postponed

Although not in any sense a surprise, the press articles announcing the European Commission’s comments that MiFID II will have to be delayed seem to be confirmation that this anticipated postponement will take place.

For those who have been complaining for several years that EU directives are not given enough time for implementation, this is very welcome. It will also be welcomed by anyone who wants an orderly structure to the regulatory system, where measures are subjected to full and thorough consultation and firms are given enough time to implement requirements after the final text is published. Those who can’t quite understand why it takes well over two years to implement a directive properly should have another look at the structure that we now have for making financial services regulation in the form of supra-national legislation. EU legislation is a cumbersome thing, even its remaining proponents must admit.

On the technical side, MiFID II is stalled on Level 2 and bogged down on Level 3. What seems to have precipitated this glimpse of reality is a letter from ESMA to the European Commission explaining the impossibility of completing the L3 task in time for the next deadline, which requires national regulators to have published their final rules by July 2016, something that they can’t do without ESMA’s material. Meanwhile at Level 2, the European Commission stands accused by all three of the biggest EU countries of proposing measures which fail to stick to the directive. That has provoked a re-think, causing further delay.

The question now under consideration is whether to delay by six months or a year. A wise Commission would delay by a year to minimise the risk of having to delay again. We shall shortly see whether we have a wise Commission.

 

Posted in: MiFID
Tagged in: ,
Jul17

Out with the Old

What does the departure of Martin Wheatley foreshadow?

While few had predicted the imminence of Martin Wheatley’s resignation, many have been critical of his performance at FCA in its short lifetime. At a personal level, like many in the City, we will be sad to see him go, but regulation is not a personal matter – it matters rather more than that.

Martin was brought in as a tough cookie, to be a tough cookie and to lead a tough regulator. That he has done, but, as ever, regulatory endeavour is characterised as damaging to the industry and as failure by the regulator who did not prevent the offence that it prosecuted. It is all too common to hear the view that all those regulations and all that cost have not prevented City malpractice. And yet those same commentators have no expectation that the police will ever bring an end to murder. Any substantial barrel will contain some rotten apples; the challenge is to minimise their number and to pluck them out quickly. Martin and the FCA have been working on that very agenda, but now the goal-posts are on the move and regime change is to follow.

In one sense, to the extent that the removal of Wheatley is calling the turn in regulatory policy, this news is to be welcomed. The rate of fine inflation is not sustainable. Competing with the US to see who can rack up the highest level of fine is a mug’s game, not least because it assumes that there is something admirable about US regulation. However much he may be remembered for his much-regretted remark about shooting first, the FCA did not follow the US down that unjust road. But the habit of massive fines, now paid directly to the coffers of HMT, damages balance sheets and penalises shareholders. If the target is a combination of expelling the villains and focusing the minds of senior management, there are better ways of achieving the aim.

But if this is the turning point, what is turning? Some of it will be about pure rhetoric. The era when anyone from the City, whether banker, professional or official was to be vilified at every opportunity is over. We know the government is now ready to help champion the financial services industry of the United Kingdom, a challenge that the Lord Mayor has always pursued, even while ministers were undoing the good work. But that presentational change must be supported by changes in substance. If the era of massive fines is to be drawn to a close, where will the credible deterrence come from?

The shift in policy may be about to become a shift in focus. No longer should shareholders be the ones to suffer from conduct failures – the spotlight moves on to the miscreants and the managers. Out with corporate fines, in with fines for approved persons and, of course, for the ‘senior managers’, so recently brought into the regulatory regime. This should not be penalties for those managing the wrong place at the wrong time; it should deal first with those who transgressed and second with anyone who abetted, turned a blind eye, obstructed the efforts of Compliance or ignored warnings of unmanaged risks.

Would this be new? It would be a move away from the American concept of corporate culpability and back to personal responsibility, which has been the foundation of our justice system for centuries. Would it materially change the role of the regulator? There would be a different relationship between regulator and industry, with both working together to find and expel the individuals who do the damage. Away would go the justification for the CEO who failed to support the regulator in its endeavours – they would no longer be targeting the company. Just as business generally supports the police, so business would support the regulator. That would be something new.

 

 

Posted in: FCA
Tagged in: ,