The European Securities & Markets Authority has delayed its submission of draft regulatory technical standards for the second Markets in Financial Instruments Directive and the accompanying Markets in Financial Instruments Regulation by three months, to September.
The RTS was originally due to be sent to the European Commission for comment and approval in in July this year, exactly one year after MiFID II entered into force on July 2 2014.
The delay reflects an “early legal review” ahead of submission to the EC to ensure the legality and regulatory consistency of new standards, and it is anticipated that the change won’t have any impact on the planned January 2017 implementation date for new rules that govern trading and transparency of securities and derivatives.
Legal experts believe that the latest delay could reflect a wider shift in the shape of the regulatory dialogue by bringing the Commission into the rule-writing process at an earlier stage to ensure that ESMA is acting within its mandate under the Level One text.
The inclusion of a legal review as part of ESMA’s RTS drafting process has also been extended to technical standards for the Market Abuse Directive as well as UCITS V and the Transparency Directive.
“This may streamline the process as there are a lot of very political issues being discussed and it could result in more final technical standards,” said Christopher Bernard, financial regulatory lawyer at Linklaters.
However, with market participants struggling to adapt their business models and practices ahead of a new regime that still lacks clarity, the additional delay adds yet another hurdle to a tight timetable that sees the new regulation implemented in less than two years.
“Firms will now have to wait two months longer to see most of ESMA’s final technical standards, which means an additional two months of uncertainty in what is already a very tight implementation timetable,” said Bernard.
Under the current European legal framework, the Commission is responsible for drafting delegative acts, while ESMA carries responsibility for draft technical standards, which must them be sent to the EC for approval and for comments.
A number of issues have emerged with the passage of the European Markets Infrastructure Regulation, which are believed to have contributed to the latest change in the regulatory process.
In particular, draft RTS for the clearing mandate under EMIR included an exemption for intra-group clearing requirements which ultimately required ESMA to make an equivalence determination for other jurisdictions – something deemed to be outside of the regulator’s remit.
Ongoing debate over the extent of ESMA’s legal reach combined with a back-and-forth between ESMA and the Commission over the frontloading requirement that aimed to push existing derivatives trades into central clearing have been responsible for ongoing delays to the implementation of Europe’s clearing obligation.
The final clearing RTS has not yet been published in the Official Journal despite being scheduled for the start of this year. The delay means that the new derivatives clearing requirements won’t take effect until 2017 – some four years after the 2012 deadline initially imposed under the G20 agreement.
