“The regulatory burden on a financial institution operating in multiple regimes - plus Brexit - is incredibly large,” said Harry Chopra, chief client officer of AxiomSL on the sidelines of Sibos 2018 in Sydney, Australia. “You get regulatory fatigue at some point,” said Chopra.
Educating the industry is therefore critical in ensuring asset managers know where the line is between work in progress and the first fines, according to Ed Royan, CEO EMEA of AxiomSL, commenting on Mifid II.
“The regulators have been reasonably flexible. But there comes a point when, 12 months in, the regulator firmly says ‘hang on, you can’t be misreporting’,” said Royan. “The regulators will be letting them know on the side when they’re going to start imposing penalties. Asset managers will already be hearing from the regulators.”
But Chopra urges caution from the investment community: “I think the real issue is the cost of misreporting. This is a question the bobsguide readers should be asking internally.”
Royan believes those impacted by Mifid II are still coming to terms with it.
“Mifid II is still bedding down, it’s early days,” said Royan. “The granularity of data required is a lot more than the previous regime. There’s some concern within our clientbase over whether it’ll drive good behaviour in the market or whether it’s just collecting data for collecting data’s sake.”
Chopra suggested that regulators must address uncertainty around legal entity identifiers (LEIs).
“There’s still a bit of work to do to maintain LEI,” he said. “At the moment there is no provision should a company no longer want to renew their LEI, there’s no way of flagging it; there has to be maturity in maintaining this public utility.”
Chopra also said asset managers in the US lacked knowledge of the regulation.
“Much of the US asset managers that are exposed to Mifid II just don’t know what it is, and are miffed about it,” he said. “Not until there’s a regulatory fine to one of those organisations are they going to pay any attention to it. That’s not to say they’re not aware of it but it’s kind of like them asking ‘what is this stuff? Do I have to put a spreadsheet together?’”
However, Royan is more optimistic about the industry’s approach to the regulation and particularly in how it was challenging their perception of regulations as a whole.
“From our clients' perspective,” he said, “they’re already reporting but are generally taking Mifid II as an opportunity to think holistically about all the different regimes across different countries and addressing them across the board.”