A sweeping overhaul of EU financial market rules went into effect on Wednesday (3 January), but only 11 member states met the deadline to start applying the new rules.
Mifid II, an acronym short for markets in financial instruments directive II, is ten years in the making and runs thousands of pages long. The massive rulebook beefs up consumer protection and attempts to avoid some of the problems that led to the 2007 financial crisis by requiring much more surveillance of trading.
But most EU countries are not prepared to start enforcing the rules, and face expensive changes to start implementing the electronic reporting measures for banks and traders. Companies have also complained about the costs.
The Association of German Banks estimated that Germany’s banking industry alone has already spent €1 billion to prepare for Mifid II. Germany, France and the UK are among the countries that began implementing the law on 3 January.
But both countries handed out last-minute extensions this week to large exchanges that will only have to comply starting in 2020.
Under the Mifid II rules, fund managers are now required to report details of trades within 15 minutes, or face fines. The new law will also overhaul how banks and companies record communications about trading.
The European Securities and Markets Authority (ESMA), which is in charge of overseeing Mifid II, has tried to calm concerns over the shaky start to the new law. The Paris-based authority warned that companies can still comply with the rules even if the member states where they are located have not yet translated the EU directive into national law.
Because of its complexity, Mifid II came into effect one year after it was initially planned.
ESMA Chairman Steven Maijoor cautioned in October that “one should not underestimate the size and complexity of this project, and thus the risk of potential glitches in the initial operational period.”
Many bankers worked through Tuesday night to prepare for the rules to go into effect the next day.
David Lawton, managing director at consultancy Alvarez & Marsal, told Reuters on Tuesday, “For the markets facing processes, there will be a very intensive through-the-night activity.”