Mifid II fines more than quadruple in 2020 as national regulators turbo-charge enforcement

EU regulators shift focus on Mifid II, cracking down on non-compliance

by | July 22, 2021 | bobsguide

Penalties linked to breaches of Mifid II reporting requirements more than quadrupled in 2020 as European member states fully switched to enforcement mode after giving financial firms two years to embed new rules, market sources said.

Figures published on Monday by the European Securities and Markets Authority (ESMA), showing an hefty surge in fines for Mifid-related sanctions from €1.8m in 2019 to €8.4m last year, reflect a shift in focus from national competent authorities (NCAs) from how companies integrated the complex range of Mifid II requirements to how they enforce them, .

“One of the key reasons for the increase in sanctions from 2018 and 19 is the regulator’s switch in focus from embedding the regulation to enforcing it,” said Matt Smith, CEO of compliance tech firm SteelEye.

As Mifid II requirements become more embedded amongst European NCAs, penalties for falling foul of the rules are increasing, with 23 out of 27 NCAs issuing penalties in 2020, up from 15 in the previous year. The total number of sanctions surged from 371 to 613, ESMA’s report showed.

While the EU’s market watchdog said comparison to previous years should be read with caution, Smith argued the findings leave little doubt that lots of firms are still struggling with full implementation – with Brexit adding a layer of complexity to present and future compliance.

“The shifting regulatory and geopolitical landscape means that many firms are still getting to grips with how to manage different requirements in different jurisdictions – for example, the UK and Europe following Brexit,” he said.

“There are still many issues that firms are grappling with when it comes to Mifid II – the most prevalent being data quality and accuracy. If companies do not have their internal data in the right shape, then their ability to meet the expectations of the regulators will be diminished,” Smith added.

Douglas Greenwell, commercial director at data management company Duco, agreed that the main problem was down to not using up-to-date technology.

“Financial services firms still rely heavily on outdated legacy systems and manual processes to manage their massive troves of data. These systems are unable to handle complex and changing data formats, resulting in data inconsistencies that require a lot of manual intervention to reconcile.

“This is not only slowing down financial firms reporting, but it also puts the businesses at a greater risk of breaching regulations by opening their reporting up to human error,” he said.

Similarly, Edel Brophy, global regulatory director of regtech firm Fenergo said Mifid II was proving to be a “huge undertaking” for financial services firms and was much harder to implement in practice.

“It’s easy to say policies and procedures are in place, but organisations are clearly struggling to be effective in embedding them into processes and enforcing them.”

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