The FCA request to the brokers to prepare for MiFID II
The european directive “Markets in Financial Instruments” (MiFID II), which represents the biggest regulatory change in the uk financial sector since the financial crisis of 2008. The new regulations will come into force on Wednesday 3 January 2018 for companies that provide services related to equities, bonds, derivatives and other financial products.
The financial companies in the United Kingdom were required to file applications with the regulatory authority prior to July 3, 2017, in order to have the necessary permissions prior to the launch date.
In a statement, the FCA noted: “We urge companies that have not submitted a complete application before 3 July 2017 to do so without further delay. We will consider all complete applications received after 3 July 2017 in 6 months, but we cannot guarantee it before January 3, 2018. “
The regulator has also recommended that businesses prepare contingency plans if they do not receive authorization prior to that date. The non-compliance will result in heavy penalties. The regulations are intended to safeguard the operations of the financial markets and to ensure that the companies operate in accordance with regulatory requirements.
Under the new legislation, businesses or individuals that perform activities of trading unauthorized in contravention of the financial services and markets.
The approach of this deadline, many market players are preparing to implement changes to comply with the new rules. While others, prefer to procrastiner as long as possible in the hope of obtaining greater clarity on this regulation.
Anyway, what is clear at this stage is that a number of important changes that will be mandatory for forex brokers. The main objective of MiFID II is to provide more transparency on the financial markets. Certain standards must be respected by all financial firms regulated in Europe.
The new directive MiFID II stipulates, among other things :
Disclosure of markups from the spreads
The Forex is an OTC market is very fragmented. Most brokers create additional margin to their price, which may vary according to the client or group of clients. The brokers will have the obligation to disclose the amount of this margin to their customers on request.
Disclosure of the counterparty
At the present time, the forex brokers are not obliged to declare who has executed or processed a transaction. They do not have to disclose if a transaction has been sent on the market or if the broker is the counterparty. Under MiFID II, the brokers will have to disclose this information.
This could significantly change the mode of operation for the marketing departments of many forex brokers, especially those who base their marketing strategies around a certain execution model (Premium of Premium, ECN, STP, NDD, etc).
What will be the difficulties for the Forex brokers to implement these requirements ?
I think it depends a lot on the model of brokerage and the marketing strategy used. This extra layer of transparency is ideal for the market in general, but it requires a lot of time and resources. The adoption of these new rules will affect several departments of brokers, compliance and marketing, information technology and risk management.