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Architect of Mifid II rules Kay Swinburne calls on EU not to rip up ‘mammoth task’

One of the architects of Mifid II has defended the controversial financial regulations as they face a large-scale review.

Kay Swinburne, a former Welsh MEP and KPMG’s vice chair of financial services, has urged European authorities not to rip up the legislation. Its forerunner was brought in in 2007 and revised in 2018 to restore confidence in financial markets after the economic crash.

She told the Standard: “This was a mammoth task to implement this enormous piece of regulation and it needs time to bed down. There’s a lack of data to make major changes at this time.”

“Most of my clients would say they would prefer a period of stability to bed this in rather than actually have a wholesale change of the rules for a second time,” said the former Deutsche Bank banker who left politics last year and joined the accountancy giant.

The European Commission is carrying out a scheduled review of the legislation, brought in, which will take 18 months to complete.

The European Securities and Markets Authority has launched a separate consultation on transparency of trading equities, a key element of Mifid II, with industry input due by next month. A second study into bond trading is due this week. ESMA’s findings will be released to the EU Commission in July and form part of the Mifid II review, made more complicated by Brexit negotiations being conducted in tandem.

Authorities admit the nature of Britain’s Brexit deal will play a big part in the regulations’ future. It is currently unclear how much of Mifid II Britain is likely to replicate, and a row is brewing between the UK and Europe over equivalence. However, industry sources pointed out the parts of the Mifid II rules covered by equivalence are relatively minor.

Mifid II was introduced to improve transparency for investors in European markets. However, it has been blamed for a fierce price war over research among brokers and investment banks, triggering a wave of consolidation and failures among small-cap brokers.

It has been suggested the review of Mifid could see research on smaller companies “rebundled” with commissions for brokers and tighter rules to stem the rise of dark pool trading – marketplaces where the price of a deal is disclosed only after the trade.

Andrew Monk, chief executive of small-cap broker VSA Capital, said Mifid II has contributed to investors shunning small caps in favour of private equity. He urged regulators to attempt to understand what investors want. He added: “They also need to act quicker and with more clout when major issues occur – people watch [fallen funds star] Neil Woodford walk off with tens of millions whilst they lose their pensions and the regulator appears to do nothing – what message does that send out?”

Rebecca Healey of fintech markets specialist Liquidnet said: “We know the regulatory intention of Mifid II is to ensure greater transparency in capital markets and we need to make greater steps to improve this. If not, we will face a continued game of regulatory catch-up as we constantly have to adapt and evolve to the latest set of rules; a scenario which benefits no one— buy side, sell side, exchange, or vendor—and particularly not the end investor.”