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Johnson warns small firms over Mifid complacency

Johnson warns small firms over Mifid complacency

New City Initiative (NCI) chairman Dominic Johnson has warned smaller firms not to get complacent about Mifid II implementation, amid expectations of a deadline delay.

The European legislation, which covers a wide range of areas affecting the investment industry, from fund costs and charges to corporate governance, is currently scheduled to come into force in January 2017.

With the rules yet to be finalised, however, a year’s delay in implementation is widely expected, and EU bodies are currently discussing this possibility.

Mr Johnson (pictured) who chairs the thinktank of independent asset managers and is chief executive of Somerset Capital Management, said NCI members were still working to prepare for Mifid II, but stressed the need to stay focused.

He said: “The firms in the NCI are very much working quite systematically to prepare for the regulation. The delay doesn’t change my view of this – preparation is still taking place.

“Many smaller firms have tried to be quite ahead of the game when it comes to regulation. A delay to Mifid II is good for the market but we wouldn’t advise any of our members to use this as an opportunity not to prepare.”

While some in the industry would welcome a delay and a longer time frame in which to ready themselves for any changes, concerns have already been raised that some companies could ease off on their preparations.

Earlier this month the FCA was warned by a number of trade associations that some smaller firms could “fall back” in this respect.

The minutes of a meeting between the City watchdog and trade association representatives noted those who had begun Mifid II preparation work, typically larger firms, had been “pushing on as they realise the scale and extent of the work required for readiness”.

Concerns centred around smaller businesses, with several associations noting that while there was still active engagement from large firms, “some smaller firms may be falling back”.

The minutes added: “It was suggested that some firms may erroneously believe the impact of Mifid II is purely systems and controls rather than wider implications, and that others simply do not grasp the amount of work which needs to be done.”

The systems and control changes alone may require an extended period of time to implement.

Liz Field, chief executive of the Wealth Management Association, has said technological upgrades represent an 18-month process in some cases.

In its round-table discussion, the FCA also said it expected greater clarity on a possible delay in the Mifid II deadline later in January.

It added: “Public minutes of a discussion in December at the [EU] College of Commissioners indicated that the college accepts the case for a delay and asked to see a draft proposal this month.”

Meanwhile Mr Johnson stressed the need for firms to anticipate regulatory changes.

As part of this, Somerset is set to overhaul the way bonuses are paid to fund managers – introducing “an element of clawback” – later on this year.

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