In numbers: Rising regulation

We highlight some of the key numbers behind the ever-growing data collection requirements in the financial services sector – and examine what they mean for firms

They might look like obscure words on a Scrabble board, but MiFID, OTF, LEI, KID, EMIR and PRIIP* are all acronyms for various pieces of financial services regulation – and together they spell out a significant increase in both the scope of regulation and the amount of data firms will need to collect to comply with it all.

2017The year that MiFID II, the second Markets in Financial Instruments Directive and the related Market in Financial Instruments Regulation which was approved last year, is due to come into force.

Originally intended as a review of the operation of MiFID I, which came into effect in 2007, it coincided with the financial crisis and market innovations such as the growth in algorithmic trading which, according to a Linklaters briefing on the directive, “clearly shaped the objectives of policy-makers. MiFID II has been framed with as much of an eye to the stability of the financial system as a whole as to the protection of the individual investor or conduct of an individual firm”.

200 millionThe number of financial instruments that MiFID II will cover by bringing bonds, derivatives and other non-equity financial instruments such as structured products and emissions allowances into its scope, according to Chris Pickles of the Open Symbology Team at Bloomberg.

The list of areas covered, included in the Financial Conduct Authority’s (FCA) discussion paper on implementation of the directive issued in March, represents a dramatic extension to the 6,000 or so equities covered by MiFID I. The second directive also extends the type and amount of information that needs to be collected on financial instruments.

Compliance, says Pickles, “will no longer be just a little project of the equity department; it will start to have pan-organisational impact”.

85+The number of fields that will have to be recorded as part of a big increase in the amount and type of transaction recording that will be required under MiFID II.

The directive is likely to treble the number of fields that have to be reported from the current 25. Besides including obvious factors like price, type of instrument, date and time, the additional recordings also include personally sensitive data such as the National Insurance number of the person carrying out the transaction. Data could also have to be retained for longer.

This increase reflects the underlying aim of the directive, which is to increase transparency and improve investor protection.

Five The number of years that long telephone recordings could have to be kept for under MiFID II – a huge increase on the current requirement of just one month. There will be a concomitant requirement to retain the systems that will allow them to be heard, regardless of any upgrades implemented by the firm. That not only adds to the cost and time required for recording, but also an extra layer of data protection to be considered.

Two The number of sets of documentation that firms could end up having to produce to satisfy regulators and their clients’ own needs.

While MiFID II will require professional clients to have the same suitability documentation as retail ones, many professionals agree specific documentation and information requirements that may not be the same as those required under MiFID regulations – hence the need for two sets of documentation.

It’s also a reflection of how the directive is not the only focus: UK regulators too are stepping up their demands. Colin Wilcox, Director of Advisory Services at The Consulting Consortium, points to increased requirements from the FCA and says: “Demands on regulated firms in relation to data capture and submission have always been a significant overhead, and are set to increase with both regulatory and European directive-driven demand to capture, retain and potentially submit additional items.”

1957 How far private bank Coutts says it is going back in its comprehensive review of client investments following an FCA fine for putting clients into inappropriate investments.

It is one of a number of signs that the regulatory burden is taking its toll on firms – another being HSBC recently citing the growing regulatory requirements it faces as one of the reasons it is considering moving its head office from the UK to Hong Kong.

The economic impact of the financial crisis, and the loss of public trust in the industry, mean that tighter regulation was inevitable and most practitioners agree that some change was needed. It will be some time, however, before it is clear whether the huge investment in regulatory reform will produce the desired effect.

* MiFID: Markets in Financial Instruments Directive, OTF: organised trading facility, LEI: legal entity identifier, KID: key information document, EMIR: European Market Infrastructure Regulation, PRIIP: packaged retail and insurance-based investment products.

The original version of this article was published in the June 2015 print edition of the Review.

Published: 16 Jul 2015
  • Compliance, Regulation & Risk
  • The Review
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  • Regulation

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