MiFID II is new European Union legislation that aims to increase transparency and protection for investors. It impacts various areas such as external controls and reporting, governance and internal controls, investor protection, market transparency, and market structure. The document provides a high-level overview of MiFID II, including its goals and key impacts. It outlines the need to conduct an organizational gap analysis to understand what changes are required. It also stresses the importance of establishing a working group and project team to develop an upfront implementation plan covering work streams, timelines, resources, and deliverables. The plan should identify any gaps and the actions needed for effective implementation of MiFID II.

1. 8th June 2017
A CoMarPowCo Company. www.comarpowco.co.uk
An Introduction to MiFiD II
Peter Dale

2. Introduction
This is not meant to be an exhaustive guide, rather it is a guide for executives
who need to come up to speed quickly on MiFiD II and its effective
implementation
The purpose is to make MiFiD II simple so that executives can develop a
thought framework by understanding at a high level:
i) the legislation and what it wants to achieve
ii) the likely impact and what needs to be done
iii) Potential steps necessary to mobilise effective delivery
From this, provide an ability to formulate a view and ask the right questions
on MiFiD II delivery. This should not be regarded as a comprehensive guide
to this complex legislation.

3. MiFiD II on a page
MiFiD II
External
controls and
reporting
Governance
and Internal
controls
Investor
protection
Market
transparency
Market
structure
Increase market transparency
to vitiate impact of
opaque/fragmented market
structure
Impact
 Additional controls on derivatives, HFT,
and algos e.g. limits, circuit breakers and
testing
 Concomitant increased reporting
requirements to regulators in respect of
these new instruments
 Increased ability for regulatory sanctions by
national regulators when a breach occurs
 Increased regulatory oversight of product
and its distribution
Impact
 Enhanced suitability and appropriateness
regime and ability to evidence over
product lifecycle especially for complex
products
 Ban on inducements to IFA’s and
discretionary advisors
 Unbundling of research
 Fee transparency
 Increased conflicts of interest
management and mitigation, especially in
best execution and TCA – requirement to
be able to monitor effectively
 Increased conduct standards especially in
product design
Impact
 Enhanced governance requirements
around board composition, fitness and
commitment
 Increased requirement to oversee
 Increased role of 2nd and 3rd line
Outsourcing controls
 Maintenance of systems and records
 Client complaint management
 Conflicts of interest
Impact
 Open access (Clearing)
 Limitations on dark pools
 Organised trading facilities (Equitisation)
e.g. migration of derivatives and similar
non exchange traded instruments to
trading venues to prevent bilateral risk –
no off market trading
Sources: E&Y, Morningstar, JWG, Norton Rose Fulbright, Bestx, CMP analysis. Bold denotes internal change requirements
Impact
 Increased regulatory and client reporting
on wide range of instruments
 Pre and post trading transpaency
 Increased depth of market and bid offer
reporting
 European consolidated tape approach
 Synchronised trading clocks

4. MiFiD II – different impacts across the investment value chain
Sources: E&Y, Morningstar, JWG, Norton Rose Fulbright, Bestx, CMP analysis.
Investment Banks
Asset Managers
Market Transparency
Systems controls
and record
keeping
Regulatory
requirements and
reporting
New Market
Structure
Best Execution
Provision of Investment
Services and Client
Protection
External
Controls and
Reporting
Internal
controls and
GovernanceNonequitytypetradingmove
totradingvenues(OTFs)
DarkPoolsRestrictions
Openaccess(Clearing)
Liquidderivativestradingon
regulatedtradingvenues
Orderhandlinganddisclosure
Europeanconsolidatedtape
Posttradedisclosure
Synchronisedtradingclocks
Allsufficientsteps
implementation
Proofofcompliance–
recordingandmonitoring
Fee,traderoutingaddmaterial
changedisclosure
Executionqualityandvenue
datedisclosure
ManagementofFI,FXand
alternativeinstruments
ManagementofFI,FXand
alternativeinstruments
Client
classification/information
ConflictsofInterest
Management
Suitabilityandappropriateness
includingproductgovernance
ClientAssetsandMoney
Inducements
Clientreportingandrecord
keepingincVoiceRecording
Regulatorybansrestrictions
andlimits
Transactionreporting
AlgoandHFTrestrictionsand
requirements
Thirdcountryreciprocity
Investor Protection
Market
Transparency
Market
Structure
GovernanceandControls
Systemsandrecords
Outsourcing
Conflictsofinterestand
complaintspolicies
Custodian Banks
Wealth Managers
Infrastructure

5. High level checklist of what needs to be done to get ready
This is to cover off the specific impact of MifiD II on the firm and the necessary gaps that need to be closed. Can use either:
 Management consultants, typically audit firms – Medium/expensive
 Top tier legal firms – Expensive. Legal disruptors e.g. Axiom – Moderate and similar standard to top tier
 Internal resources - Limited additional cost, but management may prefer external validation. An internal team of 2nd line staff, and business staff
should be in place to provide challenge to external party advice. 3rd parties working in isolation do not provide good value or advice
This will grow as the project proceeds; the following is the core functionality required:
 Responsible senior executive sponsor – an essential component of success
 Governance representatives from all effected functions not forgetting Front Office, IT, Distribution and Regulatory Affairs. These representatives can
also be used to mobilise SMEs. A SteerCo must be formed from this group and below that a project group and potentially a design authority.
 Programme and project management resource to develop and steer the project, and communication capabilities
Key to success is upfront preparation which can be communicated to senior executives on one page and be more detailed at the working level, so all staff
working understand what needs to be done. Equally be aware that plans may have to be adjusted, but done within a framework will allow much more
clarity on the impact. Planning needs to cover off:
- Clear idea of work streams (internally and externally focussed) and required work to be done – based around gap analysis results
- Clear sequencing of work based around required levels of work. IT Infrastructure and data requirements often have longer delivery lead times
- Timescales and thus urgency of action – thinking in advance may also help optimise scope of work and thus compress delivery timetables
- Critical pressure points and thus required risk management and mitigation
- Identification and management of interdependencies such as other projects, strategy alignment and other organisational priorities
- Deliverables and tracking.
- Governance requirements – especially in relation to appropriate board approvals which have their own timescales and information requirements
- Required resource and budget
- Identification of no regret actions – namely those actions which can be started as soon as possible without later regret. Key one is liaison with other
industry players and trade bodies to assist in establishing common positions
This is the key output of all previous work, and the greater the preparation done the greater the probability of success. Some key issues not to forget
 Whilst all regulatory projects are complex, clarity and good prioritisation are critical elements to effective delivery
 If late to the party don’t be frightened of over hiring interim resource upfront. They can be quickly dialled down. Hiring later will be expensive
 Don’t forget to leverage previous work, e.g. for reporting/data leverage Dodd Frank/AIFMD work. Align with other work from current initiatives
 Never underestimate the importance of tracking and the encouragement of early escalation to assist in problem resolution
 There will be uncertainty - regulators will often not provide clarity. If you need clarity but cant get it, advise regulators what you are doing and base
this action around what is likely industry common practice and also reasonable
Organisational
gap analysis of
MiFiD II
requirements.
Establishment of
a working group
and project
team
Upfront
planning
Implementation
High level checklist