2018 was a monumental year for the European regulatory framework. The region witnessed the introduction of MiFID II, PRIIPs, the enactment of GDPR, and AnaCredit, with each having a massive impact on some of the largest global organisations.
Brexit was another hot issue throughout the year, with experts, governments, and market leaders analysing the impact of this move over the financial regulations of the U.K., along with the changing relationship between the City of London and overseas markets.
2018 was also a definitive year for cryptocurrencies as well as the regulatory framework surrounding digital assets.
Is it time to get ready for MiFID III?
One could sense general anxiety amid markets, financial instruments on January 3 as the MiFID II came into effect.
Unlike major speculations, the markets responded well to the new regulatory framework. There were no major crashes or outages, apart from some teething issues in the new regulatory structure.
It’s hard to comment on the current version of the MiFID II while we await the Systematic Internaliser thresholds for derivatives which are set to be announced in February. Additionally, it is essential to take into account the consequences of a hard Brexit, both in the U.K. as well as the European markets. It will be interesting to find out whether ESMA will publish or wait for the decision for a revision.
There are already plenty of signs indicating another instalment of MiFID, probably MiFID III, in the picture. ESMA has already voiced concerns over the market transparency under MiFID II, hinting towards a sooner than later third version.
It is important to note than MiFID II wasn’t the only major regulatory change in 2018. We witnessed anew regulations for Packaged Retail Investment & Insurance Products (PRIIPs) in January, along with more regulatory changes in the form of GDPR and AnaCredit coming into effect later in the year.
Apparently, this is not the end of the regulatory changes we might witness in 2018 with FRTB staring at us. The regulatory framework is likely to have a significant impact on the standardisation of market risks in the capital markets.
Regulatory Outlook for 2019
What would the regulatory framework look like in 2019? What major regulations can we expect apart from Brexit? Brexit may not be a regulation, but the entire E.U. will experience the after-effects of the U.K. withdrawal.
There will be no surprise in witnessing new legal entities established in the E.U., especially among venues that aim to maintain MTFs, OTFs and APAs.
Global market and reference data systems must be ready to comply with parallel thresholds from the Financial Conduct Authority in the U.K. and ESMA. Although, trade reporting might witness some reduction on account of the FCA’s comment regarding the reporting of instruments covered under the current waiver program throughout transition periods.
The regulatory environment in the U.S. and cryptocurrencies in 2019
Amid a surge of new regulations in the E.U., it’d be interesting to see how the U.S. reacts to these regulatory changes.
The U.S. and the E.U. have fundamental distinctions when it comes to defining liquidity, with the former viewing liquidity as underpinning stable markets, and the latter emphasizing on regulations for the same.
It’d be interesting to see the direction the FCA decides for the regulatory structure of the U.K. markets.
Cryptocurrencies, with their growing popularity, can become a new area of regulatory interest over the next couple of years.
With a shrinking global cash market and multiple banks venturing into their digital currencies, the regulators will have to decide whether they’re ready to allow these digital assets in their respective jurisdictions.
It’d be no surprise to witness more regulatory changes throughout the global financial markets in 2019.
