The UK’s vote to leave the European Union sent a shock through financial markets, but will it throw Britain’s compliance with MiFID II into a tailspin?
From a legal standpoint, Britain is still under the jurisdiction of existing European laws for at least the next two years. Prior to the vote, pundits said that buy- and sell-side firms would be subject to MIFID II’s rules since the implementation date is January 2018.
The UK government officially notifying the EU of its intention to leave (under the provisions of Article 50) will trigger a two-year period of complex negotiation between lawmakers in London and the EU to rewrite trade agreements and laws that tie the UK to the European Union, according to Law 360’s Capital Markets report on the morning after Brexit’s vote.
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Yet, there are already doubts about MiFID II, a colossal set of centralized securities investment and trading rules designed by Brussels-based regulators that are subject to approval by the British government and Parliament.
“UK investors are questioning whether certain aspects of MiFID II — volume caps on dark pool trading, the ban on broker crossing networks, and the transparency regime for illiquid fixed income securities — are really in the best interest of the end investor,” wrote buy-side consultancy, K&K Global Consulting.
MiFID II also takes a hard line on unbundling research and executions, which will upend the sell-side business models and potentially force investment firms to pay in cash or be required to set up research payment accounts (RPAs). The RPAs are a new twist on commission sharing agreements or CSAs, which allow the buy-side to accrue their commissions with brokers, and separate the execution component from the research component.