What’s the latest with ESMA’s MiFIR Reporting Review?

In this blog we look at what’s happening with MiFIR Reporting in Europe and what we can expect to see in 2023 and beyond.

Under the mandate granted by MiFIR Article 26(10), ESMA shall submit a report to the Commission on the functioning of Article (26); a consultation on MiFIR began 24 September 2020 and the conclusion summary report was released on 23 March 2021.

The report contains recommendations and possible legislative amendments to MiFID II/MiFIR to simplify the current reporting regimes yet maintaining the quality and ensuring the usability of the reported data.

The headline changes are as follows:

• Replacement of the TOTV concept with the SI approach for OTC derivatives, bearing in mind the conclusions of ESMA’s Final Report on the transparency regime for non-equity instruments and the trading obligation for derivatives
• Removal of the short sale indicator
• Alignment with other regulations e.g., MAR, EMIR and the Benchmark Regulation
• The reliance on international standards, including LEIs, ISINs and CFIs; and
• The inclusion of three additional data elements to harmonise the way that they are reported and to avoid inconsistent and duplicative reporting.  In particular, these are indicators for:

• • Buyback programs
  • Information on MiFID II client categories
  • Transactions pertaining to aggregated orders.

You can read Kaizen’s FAQ on the changes here or watch our webinar, ESMA’s MiFIR Review – what does it mean for transaction reporting? here.

Distributed Ledger Technology (DLT) pilot

Meanwhile in response to the rapidly changing landscape across Europe for the trading and settlement of ‘tokenised securities’, ESMA conducted a call for evidence earlier this year. ESMA released its conclusions on the DLT Pilot Regime and its impact on the regulatory technical standards (RTS) developed under MiFIR relating to certain pre- and post-trade transparency and data reporting requirements. The regulation, which is on a pilot regime for market infrastructures based on DLT, (‘the DLT Pilot’) aims to develop the trading and settlement for ‘tokenised’ securities. The DLT Pilot entered into force on 23 June 2022 and will start applying on 23 March 2023.  ESMA conducted a call for evidence from 4 January 2022 to 4 March 2022 in order to seek feedback and on September 27, ESMA released this feedback received and included proposals for the way forward.

The conclusions of that report will have been greeted as good news for firms and infrastructure providers in that “ESMA does not consider it necessary to amend the RTS” now, however it will work on supervisory guidance clarifying the application of certain elements of the RTS and experience gained during the pilot will be considered during any MiFIR review.

So where are we on the ‘ordinary legislative procedure’ timeline?

EU Commission amendments to MiFIR and MiFID II were the output of the MiFID II review that was carried out, as mentioned above by the EU Commission. The consultations were wide ranging and Commission proposals for the amendments are subject to the ‘ordinary legislative procedure’ which means the European Parliament and the Council negotiate a final legislative text on the basis of the Commission’s proposals. The EU legislative procedure usually takes approximately 18 months.

The Commission’s proposals were published towards the end of last year (2021) so we are coming towards the end of the legislative procedure.

The European Parliament has published its amendments and the Council has drafted its own compromise proposals. More discussion is needed to finalise their respective positions before trialogue can commence.

What happens next?

If the European Council and Parliament reach a compromise by the end of December 2022 and Q1 2023 respectively, then trialogues between the European Commission, Parliament and Council will follow before a final position is agreed – maybe by Q3 2023. 

Legal language review and translation will then take place before the final changes to MiFIR and MiFID II can be published in the Official Journal. Based on the timings above, we could anticipate that this will be sometime in the last quarter of 2023.

The changes to MiFIR are likely to apply 21 days later and changes to MiFID II will need to be implemented in member states within 12 months. Changes to underlying RTS will also be required. 

What can we expect to see in 2023?

Change to MiFIR itself is likely to be fairly limited vis a vis Article 26 with most of the detail once again to be found in the amendments ESMA will make in Level 2.

Looking back at history is no guide to the future, as the final MiFIR and MiFID II texts were published in the Official Journal of the EU on 12 June 2014 and entered into force 20 days later on 2 July 2014. Entry into application was supposed to follow 30 months after entry into force on 3 January 2017. This of course was delayed until 3 January 2018. 

It’s unlikely to take that long this time around as the scale of the change is significantly smaller than the changes under MiFID II. Assuming that there is no major derailment in the political negotiations, ESMA is likely to produce consultation and discussion papers setting out its proposed advice to the Commission on changes to the RTS and ITS, with implementation during 2024. 

We will be watching this space and will update you further as progress is made. 

For a conversation with Matthew or one of our regulatory specialists about the upcoming changes to MiFIR or how to prepare for regulatory change, please contact us.