MiFID II & MiFIR
The European Council reached an agreement regarding the MiFID review on 21 June 2013. FCA issues statement on approach to Brexit transitional period. In a statement on the status of negotiations regarding the UK’s withdrawal from the EU, the FCA welcomed the proposal to provide for an implementation period and discussed its approach under a potential temporary permissions regime, which would permit firms to manage existing business and mitigate risks associated with a sudden loss of permission during a transitional period. (12/20/2017) FCA statement.
Post go-live data quality monitoring by the industry and the trickle of early report rejections, will highlight whether firms were not ready across all aspects of compliance, not ready across certain aspects of compliance, have solved asset specific requirements or are failing more broadly across elements of the reporting process, have prioritised their compliance order by asset class and whether decisions have been made to cease trading in asset classes whose reporting process is still not compliant, or to cease trading in regulatory unattractive asset classes altogether.
Already, just understanding the progression of this cycle will help any investor understand what he is feeling, and moderate his decisions and actions accordingly. Naturally, Euphoria is the stage where financial risk is at its highest. Investors are so assured by their string of easy successes that they expect to profit from every trade. This false sense of security leads many to ignore all risk and fail to diversify, even as the tendency of a reversal mounts after a sustained period of profit. Conversely, the window of maximum financial opportunity comes when investor sentiment is reaching or at rock-bottom during the stages of Capitulation and Despondency.
Dynamic stochastic general equilibrium, also sometimes written SDGE or DGE, is in the category of applied general equilibrium theory”, used in discussions of macro-economics. The so-called DSGE methodology” is used in discussions about economic subjects such as business cycles, monetary and fiscal policies, ecnomic growth, and so on. Some writers have criticised economists’ reliance on DSGE models ahead of the 2008 global financial crisis, saying that although complex for their time, they weren’t, in the words of one, able to deal with the shocks we eventually got”, such as financial crisis, default and deflation.
Industry bodies such as the LMA, the Association for Financial Markets in Europe and ESMA are monitoring developments and will attempt to address issues that arise in relation to the finance market. The LMA recommended forms of financing documents contain specific references to EU regulations and directives, although the interpretation provisions qualify that these references are to those laws as amended or re-enacted, which should minimise the impact of potential legislative change upon Brexit. Certain clauses (e.g. the representation relating to COMI and the increased costs clause that refers to CRD IV) may require further amendment when the UK leaves the EU. The LMA will also incorporate any new or replacement laws into their standard forms in due course. In relation to the Bank Recovery and Resolution Directive (BRRD”), on Brexit EEA lenders will need to include a contractual recognition of bail-in provision in relevant English-law-governed contracts.