MIFID II which identified the possible delays in the expected applicability of certain Mifid II provisions, especially those relating to the development of IT systems (by both regulators and market participants) that need to interact with each other. It also explained why those delays were hard to eliminate or manage, and set out possible alternatives for tackling them in a coordinated EU manner. In particular, Esma highlighted the technical challenges relating to what it described as one of the ‘cornerstones’ of Mifid II – the collection of reference data (for example, in respect of a particular security, its ISIN, instrument classification and relevant competent authority) – as well as transaction reporting, transparency parameters and publication, and position reporting. “ transparency obligations and related waivers (such as those required for the double-volume cap mechanism). Lastly in the note, Esma recognised the need for national regulators to be given sufficient time to implement new commodity derivative position reporting systems, since the requirement for market participants to commodity derivative position report was not part of Mifid. As a result of these practical implementation challenges, Esma argued it was necessary to postpone implementation of Mifid II to enable national regulators and Esma to finalise the business requirements and develop, programme, test and deploy the systems needed for Mifid II implementation. In fact, Esma noted that in the case of the most complex systems, even a 15 month timeframe may be too short. It accepted that those market participants that will need to feed into those systems are facing similar challenges and would also need additional time. Esma proposed four key principles to determine how any postponement should be determined: • affected parties should be provided with legal certainty as early as possible; • the length of the postponement should be minimised to the greatest extent possible; • further re-adjustments or postponements to the implementation deadline should be avoided; and • the final implementation dates should maximise the possibility of a simultaneous launch of Mifid II across all markets and member states. Based on these four key principles Esma listed a number of options to effect the delay, for national regulators, the EC and European legislators to jointly consider. The options include a so-called level 1 fix whereby the implementation date for the whole of Mifid II is directly amended within the Mifid II text; a level 2 fix where the technical standards and Commission delegated regulations are amended to postpone the applicability of the relevant requirements; and a level 3 fix in which all the national regulators agree to postpone the implementation date beyond that contained in Mifid II level 1 and level 2 legislation.

Esma noted that its board and relevant committees have discussed the implementation delay options, and that the strong preference is for a level 1 solution since it appears the best option for legal certainty and synchronicity. There is no certainty as to the legal form or duration of any postponement Reference datasets are particularly important as other data systems cross-refer or are otherwise dependent upon them. Esma noted that, while reference data exists for shares and bonds admitted to trading on regulated markets, the extension of Mifid II to include securities (including derivatives) traded on regulated markets, MTFs and OTFs de facto required a brand new system – calling for the development of new IT for trading venues, national regulators and the regulator itself. Esma predicts that these systems will not be operational before the third quarter of 2017. Implementation of the transaction reporting requirements is also foreseen to be particularly burdensome but of great importance, since the reports provide essential core data used for market abuse surveillance purposes.

While transaction reporting is already required under Mifid, Esma notes that expanding the set of information reportable for a given transaction and the full harmonisation of the content and format of the reports collected across the EU will be additional challenges which, Esma suspects in most instances, will require further time to design new data systems. Esma also foresaw complications arising from the extended scope of financial instruments subject to pre- and post-trade transparency obligations, as well as the need for it to calculate new thresholds and other determinations integral to the 34 IFLR/February 2016 The European Parliament subsequently published a press release on November 27 2015 setting out its position on a potential implementation delay. On the same day it published a letter to the EC, in which the European Parliament’s Mifid II negotiation team informed the EC that it is prepared to accept a one-year, wholesale delay to the implementation (moving the implementation date for the whole of Mifid II to January 3 2018). However, the European Parliament stated that it would only support the deferral subject to: the EC adopting the level 2 measures required under Mifid II as soon as possible, and the EC regularly reporting to the European Parliament on the progress towards implementation, including timelines and key milestones – all of which appear reasonable and achievable by the EC. Market impact Although Esma, the Commission and the European Parliament have all acknowledged to some degree that a delay is necessary, this has yet to be formally confirmed and there is no certainty as to the legal form or duration of any postponement.

In the meantime, national regulators and market participants are in a difficult position; as it stands, the law states the rules of Mifid II will come into effect on January 17 next year. Responsible financial services firms (let alone regulators) would, by now, like to be at a stage of advanced preparation given the rules are due to take effect within such a short timeframe, and they will significant impact how their businesses operate. However, today, effective preparation is impossible.

Further, executives will be rightly reluctant to commit significant financial and human resources to a compliance project with such an uncertain scope and timeframe. Over-ambition The underlying purpose of the Mifid II reforms was well-founded and good intentioned. But the ability of European legislators to design and implement rules has, once again, been outpaced by their regulatory ambitions. The industry knows what view a regulator would take of a firm’s failure to adapt its processes and systems to reflect new law in a timely way.

It is surely appropriate that the industry, national regulators and legislators themselves take the same view of the failure to establish and adhere to a considered and reasonable implementation timetable. By Akin Gump Strauss Hauer & Feld partner Christopher Leonard and associate Chris Poon in London Read online at iflr.com/excessambition www.iflr.com .