Two years before the Markets in Financial Instruments Directive (Mifid II) and regulation (Mifir) comes to force, SRP spoke to Christian Vollmuth (pictured), managing director of the Deutscher Derivate Verband (DDV) about the work that structured products issuers in Germany and the association are carrying out to ensure a successful implementation of the new requirements.
How far is the German structured products industry on full compliance with Mifid II?
Even though the Mifid II/Mifir package entered into force on July 2, 2014, market participants must comply with the new regulation beginning January 3, 2017. We and our members are familiarising ourselves with the new requirements and conducting preparatory work in relation to the relevant areas. Many of the provisions of Mifid II and Mifir also have to be implemented by means of Technical Standards to be drafted in the meantime by Esma (the European Securities & Markets Authority) and approved by the Commission. The Commission will also enact Delegated Acts based on advice given by Esma. However, there are no final results yet. So, in mid-2015, we are not even close to reach the finishing line.
What are the biggest challenges German providers are facing?
There are several challenges for the industry and certainly one major challenge is the future implementation of product governance. Mifid II will introduce extensive product governance requirements on both manufacturers and distributors of investment products, including the requirement to identify a target market of end clients. The structured products industry is also concerned with the new market infrastructure and transparency requirements. For example, Mifid II extends the Systematic Internaliser regime, so that it applies not just to shares but also equity-like instruments and non-equity instruments, including structured products.
How does the DDV support its members on the implementation the new Mifid II requirements?
For example, with respect to the product governance, Esma has not yet specified a Target Market Concept, so the DDV and its members are developing their own to stay ahead of the regulatory curve. We have based our concept on needs, objectives and characteristics of the respective client, and have added in risk assessment. Risk assessment was added to cater for another regulatory initiative being introduced in Europe, Priips (Packaged Retail and Insurance-based Investment Products), and avoid duplication of work with respect to target markets.
What’s your view on the extensive regulation and supervision of the financial sector? Is it time for a “regulatory pause”?
No one can yet predict with certainty the impact of the multitude of European and national regulatory measures. But what is already apparent is that there are still inconsistencies and also overlaps in many of the regulatory plans affecting structured products. This concerns, for instance, Mifid II and Germany’s draft Retail Investor Protection Act.
Pressing ahead too quickly with the implementation of some regulations bears the risk that banks will incur multiple implementation costs. Also, investors would hardly be able to keep track of the welter of information. Effective investor protection is different. A sensible solution to the dilemma might be a ‘regulatory pause’ rather than a standstill. Regulatory bodies should carry out intermediate checks from time to time to confirm that they are on the right track. The principle of a balance between market and regulation must not be forgotten. Existing legal principles must be looked at to check if there is a more practicable way of dealing with them. The goal should always be to try to see the situation from the point of view of the investor and avoid complexity. Also, to ensure fair competitive conditions for all financial instruments with regard to investment advice, the same information and documentation requirements must naturally apply to all of them.
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