MiFID II Challenges Require Complete Business Process Rethink

Financial market institutions are gearing up to meet the MiFID II deadline of January 2018. It is much larger in scope compared to the preceding regulation and requires a different approach towards leveraging Big Data in operational and transactional transparency to ensure investor protection and a fair and uniform functioning of the European financial marketplace.

MiFID II is not only another reporting requirement. This regulation involves technical, political and economic requirements being put in place – requirements that run literally thousands of pages. The long-term consequences are not entirely knowable at this time – but it is clear that non-EU firms will be impacted as well when doing business with EU entities.

The comprehensive regulations (with all their vagueries) and the threat of massive fines for non-compliance are creating fault lines among executives, bank risk officers and the developers tasked with complying. Some of the headaches executives have are:

• Too many processes are still manual — and driven by spreadsheet. The industry is maddeningly paper- and reconciling on spreadsheets-based. Can digital labor automate these processes?
• Third party vendors are ramping up MiFID II solutions. But outsourcing begs the question: can you outsource the liabilities if they make a mistake? Probably not.
• Data Unwind and Transparency. Transparency requirements to regain the public trust mandate that all communications supporting trades be available for unwind – for any point in the trade cycle. Bitemporal tracking across disparate data types will be crucial.
• Performance KPIs lag behind compliance. What are the baseline behaviors for good (and bad) behavior – by traders? A stellar performer may make 100s of phone calls before big trades. If that same trader has a big trade –without the support of 100s of phone calls – should flags be raised?
• Expansion of Asset Classes. Don’t underestimate the difficulty in complying across all instruments. Reliance on ISINs may not be enough to address the complexity and terminology in a derivatives contract.

All of these challenges will impact every aspect of the bank: operations, trading and technology. The conventional wisdom will be to think “data warehouse,” “reporting solutions” and “ETL,” but this won’t address the underlying challenge that few trust the quality of the data, that ETL and traditional technology won’t scale to the needs of an organization in time for May 2018.

Organizations that view MiFID II as merely a compliance exercise will cement its failure. It requires several new new ways of thinking – from being reactive to proactive, and being transaction-centric to customer centric. The first shift requires an understanding that the health of the organization itself is dependent on the behaviors of each individual. The second shift requires a mindset that the loyalty and health of investors – are tantamount to organizational success.

Bottom line is MiFID II requires new organizational processes and thinking, research and development in how to support it, and a departure from rigid technologies that make adaption costly and likely, not even feasible.

More on MiFID

MiFID II: It’s About the Data, Not the Reporting This 45-minute webinar shows how real-time reporting when faced with comprehensive regulation is tricky – but not impossible. MarkLogic explores how an Operational and Transactional Enterprise NoSQL Database — with semantics and bitemporal capabilities — can help ease the pain of regulatory reporting.