Initially scheduled for implementation on January 3rd, 2017, the Markets in Financial Instruments Directive (MiFID) II was specifically delayed in light of the exceptional technical implementation challenges that it poses for regulators and market participants alike.
With MiFID II now entering into force on January 3rd, 2018 – a little over 100 days away – it’s vital to re-examine the key changes and impacts that this wide-ranging regulation will impose on global financial institutions.
While the new rules will make financial markets more efficient, resilient and transparent, there is no doubt that MiFID II is ushering in significant change to financial institutions’ compliance operations, processes, client management systems and technologies.
One of the biggest challenges of MiFID II is the impact it will have on KYC requirements. In particular, MiFID II demands the collection of more client and counterparty data and documentation needed to reclassify clients and products that have been brought into scope by the new rules.
The provision of more useful and accurate data enables financial institutions to create a more unified view of – and greater insight into – institutional, business and commercial clients, which should have a positive impact on other compliance programs (KYC and AML especially).
However, the downside is that this increased data and documentation will put additional pressure on data quality, operational efficiencies and, ultimately, client experience.
Furthermore, MiFID II requires a significant reworking of KYC processes, repapering of clients and counterparties, and reconfiguring of software solutions and systems. This is what makes MiFID II a uniquely complex and costly regulation to implement.
Client outreach is a fundamentally necessary exercise to inform clients if they are now in-scope for MiFID II rules and if they need to provide additional identifiers, data and documentation to support the MiFID II classification and compliance obligations.
We recently wrote about the state of Regulatory Client Outreach in a previous blog, where we concluded that most financial institutions are currently operating this essential task on a manual basis, with very minor automation. In such a non-automated environment, MiFID II has put many client outreach divisions in banks under enormous pressure as they seek to identify, communicate with and receive correspondence from thousands (potentially hundreds of thousands) of clients now in scope for MiFID II.
The second part of the client outreach process is to remediate and append this new information to client records. The remediation process for MiFID II should not be underestimated as it underpins the entire data and documentation collection process.
Managed in the right way and with the right amount of automation, however, MiFID II presents a transformational opportunity for many banks to create a unified client view across all compliance and regulatory initiatives.
Now more than ever, financial institutions need to automate as much of the Client Lifecycle Management process as is necessary or possible – not just for MiFID II but for all regulations. This will encourage the re-use of data, documentation and processes and make the meeting of new regulatory enforcement and deadlines easier and much more efficient.
In the first part of our MiFID series, we explored the six fundamental areas of KYC and Client Lifecycle Management that are set to be seriously impacted by MiFID II.