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Following the European Commission’s proposal to amend MiFID and MiFIR in November 2021, a provisional trilogue agreement was reached in June 2023, and the final act published in March 2024.1  The first measures are due to come into force in the first and third quarters of 2025. Financial firms will need to customize their systems and processes to comply. 

CHALLENGES

The Markets in Financial Instruments Directive (MiFID) and the Markets in Financial Instruments Regulation (MiFIR) are the principal texts regulating investment services and financial markets activities in the EU. 

Financial institutions face numerous challenges following the MiFID II/MiFIR amendments, specifically in the customization of client-facing processes, internal operations, IT systems and data. These are expected to be published by the European Securities and Markets Authority (ESMA) by September 2025 for the MiFIR and by September 2026 for the MiFID II amendments.

 
Post-trade transparency and reporting

• Reporting infrastructure: The adjustment of the post-trade transparency rules may require a revision of the reporting infrastructure to ensure compliance.
  
• Extended data fields: It is expected that new data fields will be requested in line with EMIR REFIT and global harmonization of reporting.

Increased transparency for financial instruments

• Data management: Increased transparency requirements, particularly regarding transaction costs, require improved data management and processing capacities to guarantee the quality and availability of data.
  
• System customizations: Existing systems may need to be adapted to fulfil new transparency requirements, which may require significant IT investments.

Digitalization and technological change

• Digital securities: The introduction of detailed requirements for data fields and processes is expected, which will lead to changes in the existing system landscape and, if necessary, the introduction of new systems.
  
• Advisory process: Increased transparency and disclosure obligations are expected when using AI in advisory. In algorithmic trading, a clearer differentiation from other systems,  like automated order routing, is required.
  
  

Investor protection

• Increased cost transparency: This includes not only a more detailed specification of cost components ex-ante and ex-post, but also an increased frequency of cost reports to the customer.
  
• Prohibition of payment for order flow (PFOF): Financial inducements are now only limited to issuers of financial instruments that must be disclosed.

Sustainability and ESG requirements

• ESG: The integration of environmental, social, governance criteria into business and investment decisions within a regulatory framework is increasingly demanded by investors and society. 
  
• Sustainable finance: Sustainable products and services will need to be clearly defined classified and reported.

Integration of consolidated tape providers (CTPs)

• Integration and compliance: The integration of data from CTPs and the delivery of data to CTPs in existing systems can be complex and requires adjustments to IT infrastructure.
  
• Costs: Utilizing data from CTPs could incur additional costs that would need to be factored into customer pricing and internal budget planning.

Risk information and customer classification

• Product risk: It is expected that detailed risk information will be required as part of product information.
• Private vs professional investors: In addition to the extended requirements for private investor protection, the criteria for classifying clients as professional investors is lowered.

HOW CAPCO CAN HELP: FROM ASSESSMENT TO IMPLEMENTATION

Capco provides expert project management support and regulatory expertise to ensure the success of regulatory implementation projects. We offer: 

• Initial workshop to gain a common understanding of ‘as-is’ systems and processes related to  existing implementations of MiFID II/MiFIR and related regulations (EMIR, PRIIPs, etc)
  
• Onsite workshop with relevant SMEs to analyze the impact of new regulatory requirements
  
• Feasibility study resulting in a roadmap, suitable implementation measures and a decision basis for next steps.
  
• Program/project setup and implementation.

LET’S CRAFT A SUCCESS STORY TOGETHER 

Capco has an extensive record of supporting clients’ implementations of MiFIR/MiFID II, EMIR REFIT and CFTC Re-write, covering a wide range of business and regulatory needs, processes, data and IT implementations. 

We are very familiar with the complexity of such regulatory projects, and, through our deep capital market expertise (across products, market data and systems) can support you with the expected modifications. 

We can further assist you with the analysis of functional, regulatory, procedural and technical requirements to define and prioritize fields of action and coordinate your individual implementation plan with you accordingly. 

References: 

1. Directive (EU) OJ L, 2024/790 - https://eur-lex.europa.eu/eli/dir/2024/790 
Regulation (EU) 2024/791 OJ L, 2024/791 -  https://eur-lex.europa.eu/eli/reg/2024/791