Will Brexit affect the rollout of MiFID II?

The EU referendum result was announced over a month ago now, and the dust appears to finally be settling after the colossal upheavals that occurred in the aftermath of Brexit.

That’s not to say the uncertainty has evaporated; many businesses are still taking a wait-and-see approach since the shock outcome. However, the initial stock market chaos and large-scale political shuffles are largely over, notwithstanding the ongoing Labour leadership contest.

Organisations will now be wondering how much Brexit will affect their businesses. One area where many financial institutions (FIs) are particularly curious is regulatory compliance, as a lot of UK regulation is derived from EU legislation, including the Markets in Financial Instruments Directive (MiFID).

Understanding MiFID

First introduced in 2007, MiFID is an EU Commission directive designed to better integrate Europe’s financial markets and ensure increased competition and consumer protection across investment services.

Following the global economic crisis, plans for MiFID II were first put forward in 2010 to make financial instruments and markets more transparent, efficient and resilient. MiFID II was adopted in 2014 and was initially scheduled to come into force in January 2017, but the European Securities and Markets Authority pushed this back a further year to January 2018.

But what does this have to do with Brexit? Well, many organisations that comply with MiFID want to know whether Britain’s exit from the EU will affect how the European directive will be implemented in the country – or if it will be introduced at all.

The Brexit effect

The Financial Conduct Authority (FCA) released a statement to companies in the aftermath of Brexit that urged organisations to stay compliant with existing and proposed regulations.

“Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect,” the FCA said.

Clearly, organisations are still expected to prepare for MiFID II despite the Brexit announcement. A key factor is that the UK government has not yet triggered Article 50 of the Lisbon Treaty, which formally starts the country’s exit from the EU.

Leaving the union is a two-year process, meaning that even if it were triggered within the next week, Britain would still be an EU member until August 2018 – well after MiFID II’s introduction.

So what will happen?

While it’s difficult to know for certain, industry commentators have claimed that MiFID II is likely to still proceed in the UK. A recent article in Bloomberg noted that many of the directive’s provisions were part of the G20 commitments to financial industry reform following the economic crisis – and these changes are still needed in Britain.

Furthermore, the UK government will need to convince EU regulators to certify that the country’s enforcement mechanisms and laws are in line with existing European directives. This suggests that MiFID II is likely to be adopted to ensure equivalency.

“We can … say with confidence these new rules will be here to stay. MiFID II may have been born in Brussels, but the FCA played a critical role in its conception, providing much of the intellectual heft behind the proposals,” Michael Hufton, founder and managing director of ingage IR, wrote in an article for IR Magazine.

Only time will tell if these predictions will come true, but FIs should nevertheless ensure they have the frameworks, processes and skilled professionals in place to comply with MiFID II’s arrival.

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