The EU rules, known as MiFID II, change how stocks and bonds are traded by increasing transparency. They also play catch up with advances in technology, such as ultra-fast trading speeds.
The rules were delayed a year due to their complexity, but Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said regulators were ready for a smooth start and that industry had also had several years to prepare.
“We are prepared for the 3rd of January deadline. We are not planning at all for chaos – that is not a word we recognize,” Maijoor told the Reuters Financial Regulation Summit.
“That is not to say there might not be some glitches at the start. It’s a very broad piece of legislation, but overall we are confident about implementation.”
Failure by banks, asset managers and other firms across the 28-country bloc – Britain, by far the EU’s biggest financial market, is introducing the rules in full even though it departs from the EU just over a year later – would be for national regulators to deal with, Maijoor said.
The UK Financial Conduct Authority said last week it wouldn’t punish firms for “not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start date”.
Maijoor said regulators would likely look differently at a violation on Jan. 4 from one at a later date.
Britain has said it will leave the EU’s single market – MiFID II rules are part of it – in March 2019, and it is unclear what trading terms it will have with the bloc after then, though it wants a transition period.
Bankers say MiFID II depends in large part on market data, with vast amounts of this from Britain, raising questions about what happens to the rules for those inside the bloc if there is not an agreed Brexit deal.
“As a general observation, MiFID II has been designed and has been written from the perspective of the most liquid market being within in the EU,” Maijoor said.
“If the UK would move out of the single market, an important, liquid market would come outside the EU and it would indeed affect some elements of MiFID. It depends very much on the outcome of the (Brexit) negotiations,” Maijoor said.
ESMA has already begun assessing the impact of a possible “hard” Brexit on the bloc’s securities market stability more generally, Maijoor said.
This work looks at credit rating agencies and trade repositories, two sectors that ESMA directly regulates in the EU.
It also looks at what happens to consumer protection for investors from the EU27 in UK-based mutual funds after Brexit.
“At one point in time we might need to make investors aware that their rights for certain funds might be changing because of a cliff effect,” Maijoor said.
“It is clear that the vast majority of credit rating agencies and trade repositories in the UK want to have the ability to continue with their services in the EU27,” he added.
Some of them already have a legal base in the EU27 and won’t necessarily have to apply for a new license, but would have to spell out which systems and people they would move from Britain.
ESMA this year published guidance to stop national regulators undercutting each other in a bid to attract firms and jobs from Britain to new EU hubs ahead of Brexit.
Maijoor said discussion among ESMA member regulators had been robust, with some differences of views in debates.