Given the wide scope and large number of issues covered in the MiFID consultation, and the extremely tight timetable, AFME has responded as best it can. The implications of the policy statements and associated detailed requirements contained in the consultation paper are significant not only for AFME's members, their customers, and all other users of the markets, but also as a major factor in determining the international standing, effectiveness and success of the European markets in the medium term. Whilst AFME agrees that regulatory improvements are required in certain areas, it is vital that these are proportionate to the actual problems identified, are based on robust and thorough impact assessments that demonstrably support any new legislative requirements, and do not impinge inappropriately on user choice, innovation or competition. Getting this balance right is extremely difficult and AFME believes, that the consultation period provided by this paper has been too tight and therefore extra safeguards, checks and supporting evidence must be incorporated into the process as it moves forward. 

The effect of the proposed regulatory requirements in promoting or stifling competition between different groups of market infrastructure and service providers is likely to be significant. Whilst AFME is supportive of a process that delegates detailed technical requirements to ESAs, where these function effectively, it has some significant concerns over the scope of the intended role for ESMA in MiFID. Developing technical standards, setting thresholds and collecting and analysing enormous amounts of data, as well as participating fully in supervision and regulatory oversight processes, will create a major burden on a fledgling institution and could result in significant systemic risk being added, rather than removed, from the financial services and markets systems. The execution risk in moving to this model of regulation needs to be properly
assessed.

The original rationale for the MiFID review related to market fragmentation and investor protection improvements. The consultation paper that has emerged has been drafted far more widely. AFME therefore urges the Commission to specify more clearly what high level policy objectives it is trying to achieve, how the current market rules have failed in this regard, and provide detailed supporting arguments and evidence demonstrating how the proposed changes will achieve the high level policy objectives desired.

As a general comment AFME believes that many of the proposed policy changes are disproportionate to the regulatory issues described and will therefore have an overall negative economic effect, as costs of compliance for the market as a whole exceed the benefit of the issue being addressed. As with any complex market structure, altering one parameter could have detrimental impacts elsewhere in the system and compressing markets, products and services by regulation may well be a significant step backward from what has been achieved by MiFID so far. Proportionality is a key theme that should be applied and evidenced across many of the suggestions in the consultation paper. AFME is a strong supporter of the flexibility and user choice currently provided by MiFID for equities, which is also enjoyed by other asset classes currently outside MiFID regulation. AFME would urge the Commission to continue to recognise these features of the markets and the significant differences in the operation of wholesale and retail markets. It is also important that regulatory change is assessed in the aggregate and takes into account other current European regulatory initiatives.

Full response