The UK referendum vote to leave the European Union has brought plenty of questions and few answers regarding the plan, timing, and potential outcomes of the UK’s withdrawal.
One area of significant interest is the implementation and UK authority of new MiFid II (Markets in Financial Instruments Directive adopted April 15, 2014) as defined by the EU and implemented in the UK by the FCA (Financial Conduct Authority). On June 24, 2016 the FCA clearly stated, “… Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.”
Many of Quark’s customers use Quark Enterprise Solutions to create and publish IRR (Investment Research Reports) and changes to the long-standing investment research business model is required by a section of MiFid II. In April of 2016 a draft Delegated Directive defines the requirements related to Inducements (Chapter IV), the goal of which is to remove the potential for a conflict of interest between investment research, investment opinion, and the funding of investment research through commissions on trades. These are “level 2” implementing measures and while initially stated as effective in January of 2017, it is expected that the earliest these would go into effect is now closer to January of 2018.
If the UK officially applies for exiting the EU in the 2016 calendar year, and the EU requirement of exit completion within two years is held, then the UK would need to adopt these EU regulations as is, or somehow create their own version of them. Given that the inducement directives related to investment research are not one of the highest priorities, it is easy to imagine that the regulations could be adopted as-is or just as easily dropped entirely from UK regulation. However, the EU will almost certainly require that the UK adopt the full MiFid II regulations as they relate to any cross-border business engagements.
The most expensive path for our investment research customer’s business would be the implementation of different regulations related to investment research inside the UK versus outside the UK. So the highest probability outcome is that the UK will follow and fully adopt MiFid II if and when the EU finalizes the timeline(s) for implementation. If that’s the case then the urgency still exists for investment banks to modernize their investment research reporting technology platforms in order to remain competitive when the regulatory changes come into effect.
Dave White is Chief Technology Officer for Quark Software. An engineer by training with over two decades defining standards for content automation, White is on the forefront of technologies shaping the future of content. He works with customers and partners across industries to develop and implement transformative solutions for creating, managing, publishing and delivering business-critical content.