A new study by consultancy firm JWG shows that 90% of buy side firms believe they are at either high or medium risk of not being compliant with the Mifid II rules when they come into effect in January 2018.
Among respondents to the survey, about one-third had less than £1 billion of assets under management (AUM), one-third had between £5 billion and £50 billion AUM and the remaining one-third had between £50 billion and £500 billion AUM. However, the level of preparedness was not found to be dependent on the size of the firm.
Rather, 48% of buy side firms regardless of size are implementing on a budget of less than £2 million and 45% are attempting to implement Mifid II with a team of less than five people. Meanwhile, other financial institutions averaged team sizes of between 21 and 49, and 15% of respondents have a budget of over £10 million.
In analysing the results, JWG classified respondents into three key Mifid II profiles. First are those that fully understand the requirements and are making the right decisions for implementation.
Secondly, it identifies those with a minimum compliance perspective who do not fully consider the requirements as applying to them. For example, 45% of all respondents still have not determined how exactly the obligations affect their firm.
And finally, there those who gave responses reflecting they do not understand the requirements, have not resourced an implementation programme, and are at the highest risk of not being compliant. JWG says that the 10% of respondents that did say they were at low risk are also those that have the smallest budget, suggesting that these institutions have not yet understood the impact of the Mifid II regulation.
How the buy side works with vendors also varies considerably across the different elements of the regulation. Although the results show an uptake in smart technological methods of managing requirements they also show that a majority (two-thirds) continue to rely on manual, resource intensive and ineffective routes to compliance.
“With only a few thousand hours to implementation, it is very troubling that the buy side does not see itself compliant with Mifid II,” says PJ Di Giammarino, CEO of JWG. “With small teams and a DIY approach, it would appear many are missing the benefit of collaborative efforts and third party solutions. A common view of the 1.4 million paragraphs of Mifid II is critical for firms on the buy side to avoid harsh penalties from the regulator and lose out to their competition next year.”