Ways to Ensure You Comply With New MiFID II Regulations

If your company has any links to the financial markets, the chances are you’ve heard of the new MiFID II legislation. This revised version of the MiFID is scheduled to take effect from the 3rd January 2018, and it’s vital that any firms linked to financial instruments prepare for the changes in good time. As you may already know, MiFID II is a revised version of the current MiFID legislation, and will continue to provide regulations to firms that provide financial services to clients; These financial services can range from shares, to bonds, through to transactions, trade and more. The MiFID II is likely to have an effect on most, if not all financial firms, and so it’s important for your institution to familiarise itself with the new legislation revisions and adjust your business model accordingly. If you are struggling, the NEX Group can help you take action with their strong focus in electronic markets and post-trade business, however, we’ve put together just a few tips on where to start.

Ensure Your Investors Are Protected

One of the biggest changes financial institutions can expect to face within the revised MiFID, is the change in investor protection. Whilst this was already a huge focal point to the original legislation, MiFID II will enhance this even further around execution principles, disclosures and record-keeping. Safeguarding will become a huge focus in firms with MiFID II as far as investments are concerned, and institutions can adjust accordingly through appropriate provisions and the changing of rules. There will also be a ban on inducements following the implementation of this new legislation, along with changes to the execution-only regime. It’s imperative that you ensure all investors and investments are safeguarded with all of the necessary data protection precautions put in place to avoid being penalised, so make sure you familiarise yourself with any changes you need to make.

Improve your Market Structure

Understandably, MiFID II will be putting stricter regulations onto financial systems and their use at all financial firms. Financial Institutions can expect plenty of amendments to the previous rules, but this is all in order to establish safer and more transparent systems. These changes can and will affect market structures, and firms will find they need authorisations from appropriate authorities, more closely regulated trading venues and more, but one to note in particular are Organised Trading Facilities. Organised Trading Facilities, or OTF, will be introduced and through these, financial institutions will only be able to trade non-equity financial instruments. In addition, the Double Volume Cap Mechanism will serve to limit the amount of equity transactions carried out inside dark pools. It’s important to remember that this is just a starting point. If you feel like you need to make changes, we recommend conducting plenty of research into market structure changes or investing in the right aid to ensure you comply with these new rules to avoid penalties.

Enforce Better Recordkeeping

If there is one thing that MiFID II is proving to be extremely strict on, it’s recordkeeping regulations. A record must be kept for almost every form of communication from services, activities and transactions within the firm. Investors can no longer rely on counterparties to keep records, and with the new legislation, you must keep records across multiple forms of communication and collaboration channels. These records have to include all telephone calls and forms of electronic communication no matter how trivial they may seem, and they should all be stored in an easy accessible database for easy extraction if it’s required. All communications with the intention of reaching an outcome of a transaction must be recorded, even when the transaction doesn’t happen. Therefore, it’s vital that you device well-practiced and sustainable methods for your entire firm to use to ensure all information is recorded appropriately.

You Must Improve Technological Capabilities

With the constant improvements in Financial Technology (FinTech), it’s no wonder that every key area that MiFID II intends to improve will involve an alteration in technological methods. You could need to make changes from enhancing your client portal, to introducing automated pricing via external data sources – it all depends on what your financial institution provides and what it is lacking in. There are several ways to adapt your company and your technologies to these changes. Launching a customer-facing portal will allow you to comply with the MiFID II regulations as it will increase client interaction, and alterations to any transaction algorithms can help you predict, determine and keep track of any trading decisions made by you and your clients. Exchanges and electronic platforms will need to be made transparent too, as it will allow you to move trading activities effectively.

Ensuring that you are prepared for the introduction of MiFID II isn’t simply the smart thing to do, it’s also obligatory. To continue trading well into 2018 and beyond, financial institutions need to meet new regulations and it could take time to adjust your business models accordingly. The changes listed above are just a few that you could face, so make sure you look at MiFID II in full detail to make sure that your firm don’t get caught out.

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