MiFID II's unfair beginning
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MiFID II's unfair beginning

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Countries that have not implemented MiFID II into their national frameworks have tilted the playing field, and it ought to be fixed. But ESMA is damned whatever it does.

In the run up to the theoretical beginning of MiFID II in January this year, investment firms of all shapes and sizes drew in external fire power at great expense in the forms of lawyers, techies and consultants to meet the January 3 deadline.

But 12 countries of Europe's 28 didn't manage to meet the deadline at all. The package of rules usually called MiFID II is made up of a regulation (which applies automatically) and a directive, which countries must implement themselves.

It's the latter part which the 12 countries have failed to implement — but, despite their tardiness, the European Securities and Markets Authority has said that firms in these jurisdictions can still continue to trade.

However this shakes out, it will lead to unfair outcomes. ESMA has plumped for a pragmatic approach. Taking out trading counterparties in 40% of EU countries won't help the continent's capital markets continue functioning — and instead of the safe, transparent markets the rules are supposed to produce, it will create chaos.

Cutting off firms from markets because of their sluggish governments is also unfair. Investment firms do not pass laws, they have to comply with them. They cannot control how quickly government pass or do not pass financial regulation.

But for ESMA to suspend the directive indefinitely isn't a great solution either.

For firms that have poured cash into getting ready on time and complying with the new rules to be facing firms that don't have to play by them (yet) in the market is inherently unfair. 

So the hapless ESMA is in a bind. How will the growing ESA regulate? How and what will it target?

It is like someone blindfolded a child at a party, gave them a bat and sent them out into the yard and said go find the piñata! But there is no piñata.

Plenty of senior European figures have lined up to criticise the laggard countries, and the Commission has sprung into action, threatening court and then fines if the 12 countries cannot get their act together, just as it did in the case of the Bank Resolution Recovery Directive.

Some particularly recalitrant countries might have to pay up twice, as Poland did the last time it was given fines for not adopting an EU directive into national law. But small fines won't level the playing field, or make the uneven adoption any more fair.

No one really wanted MiFID II, but after the crisis, Europe signed up for it. It has cost the industry billions. 

While several countries have sweated, spent and achieved, some have sat on their hands. Unlike the piñata, that is not an ending that is sweet.

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