It’s just over a year since MiFiDII came bounding into the world and all the signs are that, 12 months on, the sector is still trying to get to grips. One thing’s for sure, though, that data management could be the defining factor for how well firms cope with the evolving regulatory landscape.

Best execution

Everywhere you looked in 2018 you could see signs of firms struggling to get to grip with their new regulations. For MiFiDII one of the most painful adjustments proved to be the rules surrounding Best Execution. One survey found that 29% of firms cited it as their biggest regulatory challenge. RTS27, which came into effect in June, requires firms to compile reports showing that they have taken all ‘sufficient steps’ to achieve the best possible results for clients than all ‘reasonable steps’ as the previous regulations demanded. RTS28 meanwhile requires firms to publicly disclose their order routing practices for clients across all asset classes in reports which are both human and machine readable.

Transparency rules which require records of all communications with clients regarding each deal to be maintained, also add to demands on data managers. Being able to retain and provide all that data is no easy challenge and consumes further man-hours.

Meanwhile, reports surfaced suggesting the rules requiring financial advisors to undertake to perform annual reviews of investment portfolios was forcing some firms to turn smaller clients away. Compiling a thorough report takes hours which, for some, makes some clients with assets of less than £500,000 unprofitable.

The big data goal

The problems stem from the time and difficulty of firstly complying with the reporting requirements of the regulations and, secondly, ensuring the rules have been understood and applied correctly within your organisation. On the other hand, this could be seen as an opportunity.

The enhanced scrutiny is forcing firms to get to grips with the way in which they manage their data. If managed properly MiFiDII will compel firms to clean up and consolidate all their data. This can deliver valuable business insights from what was otherwise widely distributed. The potential of this could be enormous.

Today, financial firms can leverage big data to identify new revenue streams, to spot business risks and to accurately assess business performance. Drilling down into that data can unlock insights at every turn which in turn can potentially drive enormous value.

Data quality continues to be a problem for MiFiDII, but its mere existence is forcing firms to look at the way they handle data and identify new solutions. These solutions are already widely available with a host of innovative technological platforms offering a variety of options for managing the data a firm generates and monitoring wider trends in the market. Already, there is a gap emerging between those organisations which have effectively embraced new technology and conquered their data challenge and those which are struggling to do so. The latter spends additional time complying with MiFiDII and may refrain from certain activities through compliance fears.

MiFiD’s implementation, then, has been mixed. It’s hard to say if it can deliver on its goals, but one thing is clear: if data was vital without new regulations, it’s indispensable with them.