Regulatory Update: What Changes to MiFIR and MiFID II Mean for Compliance Teams

By: William Kolkey and Walther Navarrete 

Amendments to MiFIR and MiFID II went into force on March 28, beginning the process of establishing a consolidated tape for prices and volumes of securities traded on EU trading venues. For investment firms subject to EU rules, the amendments will mean significant changes to their compliance infrastructure. Firms can expect the following as they navigate this period of transition:

Multi-Year Implementation
The amendments nominally went into force on 28 March. Most of the revised regulatory requirements, however, are conditioned on the adoption of additional legislation:

• The amendments to MiFID II must be transposed into national law in order to take effect. The deadline for transposition is 29 September 2025.
• Many of the revisions to MiFIR depend on the creation of new delegated acts and revisions to existing regulatory technical standards (RTS). Until their adoption, as provided by Article 54(3) of MiFIR, the delegated acts in place before 28 March will continue to apply.

Because the amendments to MiFIR do not consistently identify which requirements are dependent on the adoption of new delegated acts, ESMA and the European Commission published guidance on March 27 to clarify which requirements are “self-executing” and which need to be supplemented. Notably, the latter includes the most significant changes, including revisions to the reporting requirements under MiFIR Article 26 and to the waiver and deferral regimes for transparency requirements.

The corresponding delegated acts will begin to be drafted as early as this summer, with the majority of drafting due for completion by late 2025. The process of writing new delegated acts, from consultation to final approval, will extend over several years, giving firms a window to upgrade their compliance systems and implement and test new software.

New Eligibility Rules
The amendments revise what products and types of transactions are subject to MiFIR and MiFID II. The changes are particularly salient for MiFIR transparency and reporting requirements, where notable changes include (but are by means limited to) the following:

• OTC derivatives are no longer subject to transparency and reporting obligations based on the ‘traded on a trading venue’ standard. Eligibility is now limited to exchange-traded derivatives (for the reporting requirement, derivatives executed on a trading venue), cleared OTC derivatives subject to the clearing obligation, and cleared credit default swaps referencing systemically important banks.
• Pre-trade transparency requirements for non-equity instruments now only apply to central limit order book and periodic auction trading systems. The characteristics of the trading systems that remain in scope will be specified in upcoming revisions to RTS 2.
• Both the waiver and deferral regimes have been updated and simplified. The overriding goal is for greater transparency. “The deferral regime”, paragraph 10 of the Recital explains, “should be regularly reviewed in order to gradually decrease the applicable deferral duration.”
• Systematic internalisers are no longer responsible for making transactions public through an approved publication arrangement. This responsibility will instead fall on firms that elect to be designated publishing entities. ESMA is tasked to maintain a register of such entities for each class of financial instrument by 29 September of this year.
• Various new exemptions have been introduced, in particular for ‘post-trade risk reduction services’. This replaces the more limited exemption for portfolio compression exercises, with qualifying activities to be defined in a delegated act.

New Reportable Fields
The establishment of a consolidated tape depends on high quality, harmonized data. The amendments accordingly provide that new regulatory standards be adopted both to improve the quality of reported data and to align that data with industry best practices and international standards. Within the EU, the amendments will mean much-needed convergence with respect to the data requirements for MiFIR, EMIR Refit, and SFTR.

Compliance teams should take note that the new data regime is intended to be responsive to fast evolving market conditions. Paragraph 29 of the MiFIR Recital provides that it “should be possible to change the substance and the format of the data within a short time to allow for changing market practices and insights.”

Divergence between the EU and UK Regulation
Over the last few years the rules for EU MiFIR and UK MiFIR transparency regimes have gradually diverged. Superficially, the amendments to EU MiFIR promise to mitigate these differences by setting a similar direction of travel. Both jurisdictions have now moved toward using designated publishing entities (as opposed to systematic internalisers) to make transactions public through an APA. Both regimes are simplifying their derivative transparency rules, with a focus on derivatives subject to the clearing obligation.

Still, differences loom large, including with respect to deferral and waiver regimes, the specific sub-classes of covered instruments, and exclusions and exemptions. These differences will likely grow, as the FCA consults on additional changes to their transparency requirements for non-equity instruments.

All this means that, if not already the case, compliance teams will have to use distinct rule-systems and processes for evaluating EU and UK regulatory obligations.

Next Steps
The amendments to MiFIR and MiFID II represent the most significant update to the EU’s financial markets infrastructure since the advent of MiFID II. The amendments will simplify some requirements while fundamentally transforming others. With the establishment of the consolidated tape, the new rules will also set higher expectations for accurate and timely reporting.

ESMA has promised to create a dedicated webpage that tracks the development of supplemental regulations, which would include the application dates for new requirements. Firms should monitor ESMA’s progress closely, and as with any major regulator change, be prepared to respond to evolving rules and last-minute guidance.

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