When we sent out an email to all of our clients recently concerning MiFID II compliance, we received a number of responses. Many were keen to learn more about functionality that they can add to their practice management system in order to help with compliance. Some, however, were keen to point out that, since MiFID II is a European Union (EU) directive, that it will not be applicable to UK firms, owing to the UK’s democratic decision to leave the EU.
We have received similar comments in relation to other forthcoming EU regulations and directives such as GDPR (the General Data Protection Regulation). Since the UK voted to part ways with the EU, it would seem logical to conclude, on the face of it, that EU laws will not apply to UK businesses.
This is categorically not, however, the case. Theresa May, UK prime minister, has only just invoked Article 50 which starts the two year countdown to the separation. This means that the UK will still be part of the EU until March 2019. With MiFID II arriving on 3 January 2018, it will very much apply to UK firms.
The UK has also played a role in the formulation and wording of such laws as a member of the EU. In the case of GDPR in particular, the UK played a prominent role in driving forward the regulation. It is, therefore, unlikely that the UK would now decide to go in a different direction to the framework that it played such an important role in designing.
There is also the issue of best practice, too. EU rules and regulations are designed, at least in part, to modernise the existing framework within which financial services firms operate to adapt to evolving challenges posed by changing markets and new technologies. Unless there is total disagreement with the framework laid out by existing laws in the UK, wholesale changes to them are unlikely.
Given that MiFID II will be an existing, fully transposed UK law by the time of Brexit, it is extremely unlikely that it will be subjected to immediate reform or repeal. Aside from this more philosophical reasoning, there is also the fact that UK firms will have spent a lot of money on compliance with the directive. On top of that, there is the legal time and cost in reconsidering such laws, rewording them and then transposing them into law.
The cost to the financial services industry as a whole of compliance with MiFID II is vast. For the UK to unwind this, or add its own rules on top, not only presents potential regulatory conflict, but also an added layer of cost for the UK’s financial services sector.
As nice as it is to think that seemingly onerous rules being cast over the UK from Brussels can be swatted away with Brexit (if indeed that is your disposition), it is simply not the case. MiFID II and GDPR are coming, so it is necessary to consider how your business will comply with them.