Can we afford to wait for MiFID II?

COMMENTARY: It is unsettling news that 40 percent of European finance businesses are not certain that they will be ready in time for the forthcoming MiFID II directive, say Andreas Rønnebo and Torben Krogh from PA Consulting in an opinion piece for FinansWatch.
Photo: Jyllands-Posten
Photo: Jyllands-Posten

Jan. 1, 2018 is the very last chance, and as soon as July 1, 2017, the conditional ban on commission payments within portfolio management services will take effect in Denmark – as the first country in Europe.

It can be put as simply as this: If companies in the financial sector miss the deadline, their existing business models risk becoming obsolete overnight. And that is how seriously it should be taken.

The new EU directive, MiFID II, which we are referring to, takes effect on Jan. 1, 2018. The directive focuses on investor protection, and puts heavily increased demands on trade transparency, documentation of customer relations, day-to-day operations, reporting to authorities, and supply of products in the financial sector.

If companies fail to comply with the deadline, they risk being unable to trade their financial products with customers. And that would presumably be the end of the road.

It may not be entirely surprising that many have (purposely) assumed a waiting position; there are still uncertainties as to the exact nature of the regulatory demands, and the overall difficult market terms are not helping either.

Nevertheless, it is unnerving that as many as 40 percent of a number of European finance businesses that we polled for a survey are not certain that they will make the deadline at all. Up to 60 percent have put parts of their MiFID II program on standby due to lack of specifications in the directive, and due to the uncertainty of investing in changes before the requirements are finalized.

But stalling is no longer an option that anyone can afford. The financial businesses would do well to make some major decisions as soon as possible.

Early buy-in is necessary

Passively awaiting further clarification on the EU directive is a risky approach.

Instead, each company's board of directors should employ working hypotheses that can be documented if supervising authorities demand it.

Next, the organization and employees must be dealt with; financial businesses are heavily staffed organizations with a myriad of interests.

An early buy-in is crucial to secure a successful implementation of the new rules. Top management in all affected companies should be involved and informed of the directive's details as early as possible.

Rein in the customers

The next step is to invest in sales channels and meetings with customers. Strengthening consumer protections and transparency is an essential objective of MiFID II.

For this reason, it is crucial to invest in a centralized customer handling system that enhances customer service. Finally, the business needs a clearly defined focus; most financial institutions have a range of products that only support a marginal part of the business.

The expenses of maintaining a very wide-ranging portfolio will rise with MiFID II. The time has come to actively focus business and simplify the portfolio of products and services.

An EU directive such as MiFID II opens up new possibilities for developing new financial products and services. But if the financial businesses fail to comply with the directive, it may result in heavy expenses with low margin.

Consequently, an urgent call for financial businesses to dare face the risk and take the necessary measures now.

Individual players in the business should increasingly view regulations as a field to compete in: structured and punctual implementation of new regulations that affect business directly can be decisive for operational success or failure. A bank or an asset manager that implements e.g. MiFID II just 2-3 percent better than competitors has obvious advantages on the market.

English Edit: Marie Honoré

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