Could Brexit mean one of the EU’s most complicated laws may become even more complex?

The revised Markets in Financial Instruments Directive (MiFID II) could be updated after Brexit. So what would MiFID III entail?

That’s what MirrorWeb, the RegTech company, looks into in its latest report. The research Could Brexit Spark MiFID III? – A non-political report on how financial services has received MiFID, where it’s headed and what a third directive might target does exactly what it says on the tin.

It kicks off by outlining the origins of the current legislation, from the original law being drafted in 2004, through its implementation in 2007 and its revision following the financial crisis.

MiFID II was eventually enforced in 2018, but the European Securities and Markets Authority announced in November 2019 that it is reviewing the regulations.

The result of MiFID II has so far been positive, with the UK’s Financial Conduct Authority estimating that the law has saved £70m for equity investors.

At the same time, MiFID II has some shortcomings, like 17 countries within the EU still having failed to transpose it into law as of June 2019. Complaints have also been raised about the unbundling of research compromising its quality.

While MirrorWeb made a point of not taking a political position in regards to Brexit, the RegTech company stated that the impact of the UK’s exodus will have an immense impact on businesses operating in Europe.

MirrorWeb also took the opportunity to address one of its biggest pet peeves: Article 16 of the MiFID II. Having previously outlined how Article 16 leads to huge reporting issues, costs and that the requirements on how to store records are extremely difficult to stay on top of. In the new report it repeated several of these issues.

MirrorWeb noted that MiFID II will remain unchanged in the UK for the time being.

“However,” the report continued, “a huge driver behind MiFID was harmonisation between different European markets. And, following Brexit, there will still be a need for alignment between the UK and European markets with harmonised regulation playing a big part in this. With it being anyone’s guess as to how the UK’s long-term relationship with the EU will look post-Brexit, some are concerned that confusion may arise over what role regulations drafted pre-Brexit will continue to have.”

So what could MiFID III mean and what do the industry stakeholders want?

“For most clients their biggest pot of money is held within their pension fund which is not a MiFID instrument and therefore excluded from the disclosure requirements,” said Vicky Pearce, director of compliance at b-compliant, the consultancy, in the report. “Many financial advisers are including this information but where advisers aren’t there is a mismatch of information to clients. With so many regulatory changes over the last 20 months, standardisation of the disclosure would be so much easier if it was mandated.”

Nathan Fryer, paraplanner and director at Plan Works, added that he would like to see a clarification of the costs and charges disclosures as “many advisers are currently using best endeavours as a get-out clause which cannot last for ever.”

MirrorWeb concluded, “It remains to be seen what happens to MiFID, when the third iteration is introduced and what it will look like. In the meantime, the onerous requirements of MiFID II aren’t going anywhere and it is clear more can be done in how firms comply with this.”

You can read MirrorWeb’s full report Could Brexit Spark MiFID III? – A non-political report on how financial services has received MiFID, where it’s headed and what a third directive might target by clicking the link here.

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