Christmas Plans Face Ruin for Finance Industry as MiFID II Looms

The head of currency trading at Deutsche Asset Management AG warns it could ruin some people’s Christmas. Lawyer Neil Robson says he’s working as many as 16 hours a day to help get clients up to speed.

They’re talking about MiFID II, the overhaul of financial-services rules in the European Union that comes into effect in January and seeks to impose transparency by removing conflicts of interest in financial markets. It’s also resulting in late nights for workers and consultants as firms rush to be ready for the biggest change in a decade to regulation in the region.

The Financial Conduct Authority warned last month that some companies have not managed to meet deadlines to ensure they’ll be ready to comply with the revised Markets in Financial Instruments Directive. EU regulators themselves have yet to make key decisions surrounding some of the legislation and risk rule clashes with foreign markets, adding further confusion for the buyside and sellside. U.S. finance firms in particular “seem ill-prepared” for the changes, UBS Group AG analysts wrote in a note to clients on Oct. 2.

Little Capacity

“There are fund managers that are just starting to look at this now,” said Robson, a regulatory and compliance partner at Katten Muchin Rosenman, who gave his first presentation on the new rules seven years ago. He warns those lagging behind that “there is very little capacity in the City of London to take on new clients.”

Banks in Europe employed 2.8 million workers at the end of last year, the lowest level since at least 1997 as they shed jobs to repair balance sheets destroyed by the financial crisis and automate more functions. Despite the job cuts, the banks have to pay for extra hires in compliance, increasing the burden on front-office staff.

“What happens to your social life in that environment?” said Michael Ingram, a market strategist at BGC Partners. “It disappears, though perhaps it’s moot given you have few colleagues left to socialize with.”

Studying Rules

A London-based fund manager, heavily involved in the implementation of the directive, said his team are bored from spending most of their free time studying the rules and he’s unable to attend post-work drinks or parties while they get up to speed. He asked not to be named as he is not authorized to speak to the press.

“It’s not really a typical cocktail party conversation, you’ll drive your guest out if you start talking MiFID,” said Priya Misra, head of global rates strategy at TD Securities, adding it’s creating extra headaches for research departments. “I have to figure out the Fed and rates but then, also, how do I deal with MiFID? That’s what’s not making it a lot of fun.”

Still, industry veterans say that their work life will settle once everyone has digested the new rules. The European Securities and Markets Authority has also signaled it will take a “rather cautious approach” when the rules are first introduced.

“My experience with changes in regulations is that as soon as they are in, and the system has adapted to them, they get a lot less intense”, Christian Gattiker, head of research at Julius Baer Group Ltd. in Zurich, said in an interview. “As soon as you are familiar with the new regulation standards, then you can start thinking about your life again.”

Best execution

Others are less optimistic. With just over two months to go before Europe’s MiFID II rules kick in, the vast majority of fund managers aren’t prepared to meet its so-called best execution requirements, according to a recent survey by dark pool operator Liquidnet Holdings Inc.

“If you have started MiFID II projects too late, you won’t have time for anything else for the rest of the year and can’t even celebrate Christmas,” Christian Schoeppe, the head of currency trading at Frankfurt-based Deutsche Asset Management, said in an interview in Barcelona. “This is probably something that has been underestimated across the industry” and “it’s eating up so much time.”
Source: Bloomberg

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