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Corporate Compliance Insights
Home Featured

Don’t Put All Your Compliance Eggs in the MiFID II Basket

by Roy Kirby
February 27, 2018
in Featured, Financial Services
golden eggs in wicker basket on dark background

Why “Minimal Viable Compliance” Can’t Be the Goal

Major regulatory deadlines often lead firms to settle for minimum viable compliance – taking whatever action is needed to avoid regulatory scrutiny, regardless of the cost. But this approach inevitably leads to an inefficient, patchwork approach to compliance, where new procedures are created for each new regulation. As firms move past the MiFID II implementation date, the sheer size and complexity of this new regulation may finally be giving firms the impetus that’s needed to change their approach.

When major regulatory deadlines loom large, there’s an inevitable tendency for the financial industry to scramble for minimum viable compliance. In layman’s terms, this means doing whatever it takes, regardless of the expense, just to keep the prying eye of the regulator away. Ring any recent bells? The trouble is, while taking this approach may seem like a sensible option now, it’s unlikely to service future requirements and actually goes against the spirit of the regulations. This is why, as the post-January 3rd dust starts to settle, financial institutions need to quickly adjust to ensure compliance with all regulations, not just MiFID II.

The issue is, in order to adapt to achieve sustainable long-term compliance, firms cannot afford to keep adding to the vast array of information, already housed across multiple systems, every time a new rule is enforced. After all, regardless of the rule in question, they all require overlapping sets of data. Instead, firms need to clean up the siloed information scattered across the business and consolidate their approach. And be under no illusions, as the local regulators begin to shift their focus from just demanding data consistency to seeking both data consistency and quality, now is the time to reassess. In response to this, expect firms to be piling the pressure on the data vendors to provide one really strong source of information. The problem is, as highlighted by our end-of-year survey of over 100 sell and buy-side participants, over one-third of firms are still addressing regulations separately with their own data and systems. If this is still the case, how can the sector even begin to think about moving beyond just doing the bare minimum to be compliant?

It may well be that the sheer scale and complexity of MiFID II becomes the catalyst for change among these firms. Since the implementation deadline, there’s certainly signs that institutions are adopting a more consolidated approach, as they are beginning to re-evaluate what more can be done with their reference and market data. It is not hard to see why. Embracing a standardized, more scalable data service that enables firms to extract the reference and pricing information needed for each regulation is an obvious next step. The crossover between MiFID II and the recently implemented PRIIPs is a prime case in point. That a lot of the data market participants are currently distributing for MiFID II is already reflected under PRIIPs.

As the industry navigates its way through these uncharted post-MiFID II waters, it is clear that those who took the check-the-box approach to January 3rd may well feel significant cost and operational ramifications further down the line. The challenge for these firms is that MiFID II is just one of the many requirements intertwining like a plate of regulatory spaghetti. While there currently may be somewhat of a post-implementation day lull in the air, this will not last for long. When the next piece of legislation lands, firms can’t just layer on top of each layer; eventually the entire stack of compliance cards will come tumbling down.

With this in mind, the natural next step is to look at the role for mutualized approaches to the challenge, through which key industry players can bring the required information together. This is exactly why firms grappling with this regulatory onslaught should be challenging their data partners to provide exactly what they need right across the business, in the form they need it. After all, the age of ready-to-consume data has very much arrived, so there should be nothing stopping financial institutions from using it.


Tags: Markets in Financial Instruments Directive (MiFID II)
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Roy Kirby

Roy Kirby

Roy Kirby is Senior Product Manager at SIX Financial Information and has been with the company since 2015. In this role, he is responsible for identifying and responding to market trends and customer requirements across all financial markets globally. The product team for which Roy is responsible is currently focused on the areas of regulation, asset servicing and corporate actions. A core responsibility of his team is to provide thought leadership and expertise to define solutions that mitigate clients’ risks, improve profitability and improve efficiency. Some notable topics include MiFID II, FATCA, IRS 871(m), Solvency2, cross border taxation, security master files and corporate action workflow. Prior to joining SIX Financial Information, Roy spent 18 years in various roles within the financial markets.

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