With MiFID II about to go live, Nicholas Pratt talks to a number of regtech providers about their pre-MiFID preparations and post-MiFID expectations.
The long-awaited revised capital markets reform known as MiFID II is set to come into force in January 2018 and asset managers, along with many other financial institutions, will face a wide array of reporting requirements covering trade reporting and best execution, commission payments and broker research, target markets and product governance.
For the burgeoning regtech and compliance systems market, MiFID II has generated a wealth of product development and enhancement to help asset managers comply with the directive. But a series of delays, a lack of technical detail and overlapping regulations have made life hard for these vendors.
And furthermore, despite the imminent arrival of the first reporting deadline (in April 2018), many asset managers may still be largely unaware of the implications of MiFID II and have yet to seriously engage with a reporting service provider. Consequently, many vendors see January 2018 not as a closing date for either updating their products or signing clients, but as just the start.
MICHAEL ALDRIDGE, GLOBAL HEAD OF TRADING SERVICES, IHS MARKIT
What aspects of MiFID II does your product(s) cover?
We have a broad solution developed specifically for MiFID II and to meet its four core objectives of investor protection, transparency, governance and market structure.
Consequently, we can help buy-side and sell-side firms comply with all aspects of MiFID II: benchmarking analysis and reporting; research payments; transaction reporting; regulatory outreach and data exchange with counterparties.
How many clients/users does your product have?
We’re helping more than 1,000 firms comply with their MiFID II obligations.
What has been the biggest challenge in developing your product over the past two years?
From a product development perspective, issues around rule ambiguity, interpretation and, consequently, client expectations have been an ongoing challenge. The development effort itself has had to be carefully balanced between existing product enhancement and new product development.
How many times have you had to adjust/enhance the product over the past two years?
The MiFID II product roadmap has not wavered from its original plan. However, within the plan, detailed product requirements have been adapted to meet the clarification of specific rules as they have emerged over the past two years.
When do you expect to make the first update to the system once MiFID II goes live?
Even though MiFID II has a major milestone on January 3, 2018, many of the sub-components of the overall regulation do not come into force until well past that date. RTS [regulatory technical standards] 28 reporting, for instance, has its first publication deadline on April 30, 2018 and firms in scope for RTS 27 reporting are required to publish no later than June 30 for their Q1 2018 statistics.
JOE DUNPHY, VICE-PRESIDENT, PRODUCT MANAGEMENT, FENERGO
What aspects of MiFID II does your product(s) cover?
The Fenergo Client Lifecycle Management (CLM) solution includes a MiFID II module that we have built in partnership with our financial institution clients. It is primarily based on data and documentation responsibilities. This includes formal MiFID classification of counterparties, management of confirmations and election letters, legal entity identifier (LEI) and direct electronic access datasets, transaction reporting data and suitability and appropriateness.
How many clients/users does your product have?
There are over 35 financial institutions using the Fenergo MiFID module.
What has been the biggest challenge in developing your product?
Uncertainty around timelines and regulatory guidance. As we were building a product solution with our clients in advance of the MiFID II deadline, we needed to be very careful of the impact of changes in interpretation and guidance.
How many times have you had to adjust the product over the past two years and when do you expect to make the first update?
We continuously enhance the CLM product with quarterly releases of new content and functionality. The Fenergo MiFID II solution has been live since June 2017. Our next scheduled release after the MiFID deadline is at the end of Q1 2018. We are anticipating some minor changes and will also make short-term amendments available as needed.
PAOLO BRIGNARDELLO, HEAD OF PRODUCT MANAGEMENT AND MARKETING, FUNDSQUARE
What aspects of MiFID II does your product(s) cover?
We set up a data hub to help asset managers and distributors to ease the exchange of target market data and sales feedback for product governance. We also provide trade reporting services by acting as an interface for the local regulatory authority.
How many clients/users does your product have?
For trade reporting, we work with several regional banks, including depositary banks that work with asset managers. For product governance, we work with several asset managers and some distributors directly and as we get closer to the implementation deadline.
What has been the biggest challenge in developing your product over the past two years?
The definition of a common standard for the target market has been our biggest challenge. We have seen more market interest in Priips than MiFID II when it comes to data exchange issues. And the Efama EMT file was finalised very late, so there has not been as much time for market participants to understand, promote and implement this important element. Many asset managers still don’t understand the implications of MiFID II and are only likely to wake up to them once it goes live.
How many times have you had to adjust the product over the past two years and when do you expect to make the first update?
Many, and we are still adjusting. The issue is not just in the standard, but in the workflow around the file management – When? How? Who? And so on. It is not simple to exchange a data file; it requires many other steps and technical connections to be set up such as processes definition, governance and the technical network.
We plan to deliver an MVP before the end of the year and we have set a roadmap for 2018 that will involve service improvements every quarter.
RONAN BRENNAN, CHIEF TECHNOLOGY OFFICER, MONEYMATE GROUP
What aspects of MiFID II does your product(s) cover?
We have a range of products targeting different areas of MiFID: CSS Accudelta (regulatory data management); CSS Silverfinch (regulatory data exchange); CSS Shuttle (trade and transaction reporting); CSS Signal (substantial shareholding and position limits); CSS TCA: (trade compliance analyser): CSS Best Execution.
How many clients/users does your product have?
Accudelta: 10-50; Silverfinch: 100-500; Shuttle/Signal: 100-500
What has been the biggest challenge in developing your product?
Uncertainty with respect to the timeline and the potential for the European Securities and Markets Authority to delay the introduction of the directive. In addition, we have had a long wait for the Level III details.
How many times have you had to adjust the product over the past two years and when do you expect to make the first update?
Each of our products is either updated on a monthly or quarterly basis, with specific interim releases to support high priority issues. At the current point in time, our first releases next year are planned for end of January 2018 and end of Q1 2018, in line with the standard release cycle.
GERNOT SCHMIDT, PRODUCT MANAGER OF MIFID II, SIMCORP
What aspects of MiFID II does your product(s) cover?
SimCorp Dimension has been enhanced to support our clients in becoming MiFID II-compliant in those aspects most relevant for the buy-side. This includes transaction reporting, post-trade transparency reporting, order record-keeping by trading venues and brokers, trading obligation for derivatives, commission and best execution.
How many clients/users does your product have?
We currently have 14 clients implementing the MiFID Article 26 Transaction Reporting solution but, going forward, we expect that to grow beyond Europe. Most of our 180 clients will in some way be impacted by the regulation. Firms who trade through European MTFs and brokers or have European clients will be hit by indirect regulatory requirements. This includes firms in North America where the Securities and Exchange Commission is watching MiFID II with anticipation. If it does what it says on the tin, the regulation may well be adopted directly by domestic authorities.
What has been the biggest challenge in developing your product?
There has been a distinct lack of clarity on technical standards from other market participants. Buy-side firms need to provide and receive a lot of additional MiFID II-related data when trading on venues. However, accommodating these changes in workflow has been difficult to date, as trading venues have provided technical specifications only very late into 2017, causing the scramble we have seen.
How many times have you had to adjust the product over the past two years and when do you expect to make the first update?
SimCorp has taken a pragmatic approach to defining the solution, given the available market knowledge and an open dialogue with our own clients. Using an agile development model, we have been able to adjust our solution, as technical details of the regulation became clear.
We release two software releases for Simcorp Dimension each year, where we deliver enhancements, including regulatory upgrades. I expect that many operational details around transaction reporting, SI regime, and post-trade transparency will become clearer during 2018 and 2019. This will lead to an emergence of new best practices and we will assess the impact of these on an ongoing basis.
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