How can you turn MiFID II into an opportunity?

By David Ririe, UK Sales Director at b-next

Published: 25 October 2017

On 3rd January 2018 the Markets in Financial Instruments Directive (MiFID II) will come into force. For some, the directive is an unwanted and costly burden for which they are ill prepared. An alternative is to view MiFID II as an opportunity, where regulation builds momentum for long-term restoration of reputations, improved efficiency and cost savings. But how can asset managers achieve this when the clock is ticking and resources are scarce?

The countdown to MiFID II is well underway, with less than six months to go to the deadline, many market participants are still unprepared. A recent survey found that 90% of buy-side firms across Europe believe they are at high or medium risk of not being fully compliant by 2018.1 The same research found two thirds of buy-side firms are still in the relatively early stages of their MiFID II programmes.

Recent media reports also suggest that around 25% of smaller funds are struggling to get ready for the deadline.2

MiFID II requires compliance in the areas including record-keeping, best execution and also recording and retrieval of voice and other digital communications. As you prepare to comply with this new regulatory mandate, automated technologies can help you to seize an important opportunity to strengthen your business, fast track compliance programmes, while reducing risk and costs.

The potential complexity, magnitude and dynamic nature of the surveillance and reporting task required by MiFID II cannot be underestimated. The task is unsuited to manual processes, but ideally suited to automated data processing and analytical technologies that offer advanced multi-venue, multi-asset class surveillance and compliance with MiFID II and other regulatory mandates.

Automated surveillance technologies can alert you to market abuse attempts early on. By identifying suspicious situations based on a number of pre-defined scenarios, trade surveillance systems can help prevent market abuse from escalating.

These systems can also help you to manage the best execution requirements of MiFID II cost effectively. Examples of functionality available include:

  • Identification of the best venues for executing client orders
  • Revelation of opportunities for improving trading systems / desks
  • Profitability and competitive analysis functions
  • Proactive management of customer requests, e.g. daily, monthly, and quarterly reports
  • Version management of policies
  • Ability to create a best execution policy for specific customers / customer groups

Advanced speech and digital text analytics technologies have also been combined with trade surveillance, addressing the voice recording and retrieval requirements of MiFID II. These systems allow you to search and analyse voice call recordings and digital text communication including email, chat and social channels. This can be done by time frame, trader, counterparty and trader desk. The technology makes it possible to search, find, analyse and report on voice and text-based data, all at incredible speeds.

The benefits of implementing automated solutions can be summarised as follows:

  • Quick response to regulatory changes and reporting requirements
  • A reduction in workload and associated costs
  • Proactive management of suspicious trends
  • Improvements to the quality of market abuse monitoring
  • Improvements to risk management and compliance oversight

Rather than dwelling on the additional workload and costs associated with compliance, the buy-side must embrace the opportunity that MiFID II presents to improve processes, maximise returns and restore hard won reputations. MiFID II will likely be followed by further regulation in years to come, perhaps in the shape of MiFID III. Technology will be pivotal in helping firms to do the right thing in terms of compliance, while also driving efficiencies that will help to reduce long-term costs, improve execution standards and increase transparency. Such outcomes can only be of benefit to the financial sector as a whole.

[1] Who is ready for MiFID II? JWG July 2017
[2] Financial Times 27 January 2017

To contact the author:
David Ririe, UK Sales Director at b-next: