1. MiFID IIComing into effect 3 January 2018, the EU’s revised Markets in Financial Instruments Directive (MiFID II) will have far-reaching effects that will transform how financial services companies operate.
According to research by aggregator and institutional research marketplace RSRCHXchange, 15% of global fund managers do not expect to be MiFID II-compliant by January 2018.
A lack of preparedness should be a worry, but it may not result in penalisation.
Speaking at the AFME European Compliance and Legal Conference on 20 September 2017, the FCA’s director of enforcement and market oversight, Mark Steward, hinted that a ‘three-line whip’ of compliance wouldn’t be sought straight away.
The regulator is aware of the scope of work that is required, and will not take action against a firm that hasn’t met all requirements come 3 January if there is evidence that it has, and still is, taking steps to comply.
However, deliberately flouting this leniency will not be tolerated.
2. GDPRComing into effect 25 May 2018, GDPR will replace the Data Protection Directive. With the ‘digital economy’ and the ‘data economy’ increasing in value, it gives consumers more control over their data and consolidates overlapping regulation.
Failure to comply will result in a penalty with an upper limit of €20m, or 4% of annual global turnover – whichever is higher. The financial services sector is likely to be hardest hit by this, according to
research carried out by
ITProPortal, which asked the public how they would respond if GDPR were to launch tomorrow. Just under a third (32.7%) of respondents said they would be issuing Subject Access Requests – information that is held on them – to their bank.
For more information, read the CISI’s Professional Refresher
here.
3. US midterm electionsOn 6 November 2018, nearly two years to the day since Donald Trump was elected as the 45th President of the United States, America goes to the polls again for the midterm elections.
Since Trump’s election, the stock markets have gone up, bank lending has gone down and his regulatory reform agenda has not taken place at the pace that was promised when he was running for office.
The main opposition party has lost seats in both the Senate and the House in the past three midterm elections, indicating that Trump could be in for a long night come 6 November 2018. Further failure would lead to even less reform and political gridlock.
4. Irish presidential electionMichael D Higgins’ presidency of Ireland expires on 10 November 2018. Upon his election in 2011, Higgins said he would only serve a single seven-year term. He is yet to go back on this, although 64% of voters would support a second term in office, according to an Ipsos MRBI
opinion poll conducted for the
Irish Times. If no one opposes Higgins, he could be given a free run.
The CISI’s Irish members will be keeping a keen eye on this to see if a shock result affects the nation’s financial services sector. A dip, dive or crash for the Irish economy that could occur – and has for past political upsets such as Brexit – may see financial services firms downsize, move or reconsider expansion plans. As Ireland positions itself as a potential post-Brexit option for financial services firms, a predictable result is preferred.
5. Ring-fenced bankingAt its core, ring-fenced banking rules will separate vital bank functions, such as deposit-taking, from the more volatile ones, such as investment banking.
Where should I have invested in 2017?
Mrs X has been picking winners all year long. In February she invested in Portugal’s bonds, and has seen bond prices rise ever since. Bond yield is now 1.84%, after starting the year yielding 3.7%. A European highlight.
In March, when Snap, which owns messaging app Snapchat, listed, she bought shares at $17, and sold three days later at $29.44. By flipping the shares, she capitalised before the price bottomed out.
She hasn’t just been picking winners; she’s been dropping losers too. On 26 June 2017 she sold her shares in Hong Kong-listed small-cap stocks, the day before a sharp drop that wiped out $6bn on market capitalisation.
She ended the year on a high, backing cryptocurrencies such as Bitcoin ($950 to $16,620), Ethereum ($8 to $600), Litecoin ($4.50 to $324) and Dash ($11 to $821) before most took them seriously, and selling just before Christmas when they dipped.
The rules were initially recommended by then-chief economist of the Bank of England John Vickers when he chaired the Independent Commission on Banking, and introduced through the Financial Services (Banking Reform) Act 2013.
It is hoped that forcing this distinction – which will affect Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander and smaller companies – will prevent future taxpayer-footed bailouts of banks that are ‘too big to fail’.
Coming into effect 1 January 2019, the rules will come to the fore of the financial services sector’s spotlight once other regulatory hurdles have been completed. In Autumn 2018, court hearings will begin. A High Court judge will rule on each bank’s plan, meaning they will have to restructure and separate their core assets from the riskier ones by then.
6. Brexit uncertaintyOn 29 March 2019 the UK will leave the EU. Before that day, EU law will be absorbed into the UK statute book, but these laws can be tweaked if necessary.
Ongoing Brexit negotiations in 2018 will bring about change for the financial services sector. Access to the single market and customs union is still to be negotiated; with the outcome determining if companies ‘stick or twist’ with the UK.
7. Bitcoin: boom or bust? 2018 will be the year that governments worldwide start to get to grips with cryptocurrencies. Financial services firms, too, will become increasingly involved in this encrypted world. If Bitcoin continues its current run then clients and investors will want a bigger slice of the pie – or bubble, depending on your opinion.
Where the money goes, so too do the legislators and regulators. So far, inroads are being made but concrete action is yet to happen. For example, HMRC last issued guidance on bitcoin in March 2014, while the US’ Internal Revenue Service recently won a lawsuit against digital asset broker Coinbase giving them access to bitcoin trades over $20,000 from 2013 to 2015. Expect announcements from regulators.
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2017 in review: how did our predictions fare?
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January: President Donald Trump takes office
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We said: “Uncertainty about how Trump will govern will abate in the New Year, but the steadiness of markets will depend upon the steadiness of Trump’s hand on the tiller.”
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What happened: Trump hasn’t made as much progress as was initially promised, but the markets are still going strong.
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March: French elections
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We said: “Europe will wait to see if Marine Le Pen, leader of the far right Front National, will take the Élysée Palace. A political upset like that could see France taking a more protectionist approach to issues such as trade and employment, putting the European project at greater risk.”
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What happened: Emmanuel Macron, of centrist party La République En Marche! secured a comfortable majority and, at 39, became the youngest ever President of France. His policies have buoyed Europe, leading European integration at a time when divisions, led by Brexit, abound.
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March: Britain triggers Article 50
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We said: “UK Prime Minister Theresa May has pledged to trigger Article 50 to begin Brexit negotiations with the EU in March. Investors will enter a two-year period of uncertainty while they await the outcome.”
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What happened: A ‘hard Brexit’ is becoming more unlikely, and Bank of England governor Mark Carney has recently said a bespoke deal for the financial services sector is still a possibility.
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June: Fourth Anti-Money Laundering Directive triggers AML training review
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We said: “The Fourth Anti-Money Laundering Directive will be implemented … Anti-money laundering is a legal requirement for all financial services firms. Changes to the law should trigger reviews of existing training provision and the need for refresher training courses.”
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What happened: The Directive added another layer of compliance for financial services firms to adhere to, but the rise of Bitcoin has led to amendments from the EU suggesting that a “central database registering users’ identities and wallet address” be set up. For more information, see the CISI’s Professional Refresher here.
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Seen a blog, news story or discussion online that you think might interest CISI members? Email jake.matthews@wardour.co.uk.