With just under two months to go before MiFID II is officially implemented, Laura Glynn, Fenergo director of regulatory compliance, reviews the impact that this wide-ranging regulation is set to have on client onboarding and lifecycle management processes for banks in Europe and all over the world.
Initially scheduled for implementation on January 3rd, 2017, the Markets in Financial Instruments Directive (MiFID) II was specifically delayed based on industry feedback regarding the exceptional technical implementation challenges that it poses for regulators and market participants alike.
With the EU commission recently ruling out any further extensions of the MiFID II deadline, it’s perhaps the best time to review the key changes and impacts that this wide-ranging regulation will impose on global financial institutions once more. In the case of asset managers, MiFID II readiness has been slightly pushed back towards Q4 2017 or early 2018, but the overall picture suggests financial institutions are in a strong position to meet the January deadline.
While the new rules are designed to make financial markets more efficient, resilient and transparent, there is no doubt that MiFID II involves significant changes to financial institutions’ compliance operations, processes, client management systems and technologies.
One of the most sizeable challenges of MiFID II is the impact it will have on KYC requirements. In particular, MiFID II will require 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 will allow financial institutions to create a more unified view of – and greater insight into – institutional, business and commercial clients, which will, in turn, have a positive impact on other compliance programs (KYC and AML especially).
However, the downside is that this additional data and documentation will put increased pressure on data quality, operational efficiencies and, ultimately, client experience. MiFID II will, moreover, demand a significant adaptation of KYC processes, repapering of clients and counterparties, and reconfiguring of software solutions and systems. This is what makes MiFID II a complex and, potentially, costly regulation for which to implement.
Client outreach will be a fundamentally necessary tactic 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.
It appears that many financial institutions are still operating this essential task on a manual basis, with very minor automation. In such a non-automated environment, MiFID II will put many client outreach divisions in banks under substantial 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 really shouldn’t be underestimated as it underpins the entire data and documentation collection process.
On the other hand, managed in the right way and with the right amount of automation, MiFID II could provide a transformational opportunity for many banks hoping to create a unified client view across all compliance and regulatory initiatives.
Now more than ever, financial institutions must automate as much of the Client Lifecycle Management process as possible – not just for specific regulations like MiFID II but for all regulations to encourage re-use of data, documentation and processes in order to make the meeting of new regulatory enforcement and deadlines easier and much more efficient.