The UK's House of Lords has urged the European Commission to call a halt to proposed changes to the Markets in Financial Instruments Directive (MiFID II), labelling the reforms as "ill-thought out" and potentially damaging to the City of London.
"Flawed transparency proposals and the risk of creating unnecessary red tape" means the EU needs to stop and take the time to get the proposals right, according to a report published today by the House of Lords Economic and Financial Affairs EU Sub-Committee.
Commenting, Committee chairman Lord Harrison says: "We are very concerned that the undue haste with which MiFID II has been brought forward means that the Commission simply hasn't had time to think through the implications of its proposals. The consequences of ill-thought-out legislation, not only for the City and the EU financial sector, but for consumers of investment services throughout the EU, could be hugely damaging."
The updated guidance to the five-year-old Markets in Financial Instruments Directive (MiFID) touches all corners of the financial markets, from the creation of new types of execution venue, through curbs on algorithmic trading strategies, dark pools and market data pricing, to the introduction of a consolidated tape, and clearing competition.
"While we absolutely agree that a review of MiFID I was needed, we simply can't risk locking third country firms out of EU financial markets or damaging the provision of investment services," says Lord Harrison. "It is vital that the UK Government, the Commission, Council and European Parliament ensure that, rather than being bounced into these changes, all steps necessary are taken to ensure that MiFID II is fit for purpose before it comes into force."
The Lord's report comes as the MiFID bill faces a bumpy passage through the EU legislature, with a key vote on the reforms that was due to take place this week re-scheduled for September as consultations continue.
In its report, the Lords Committee conclude that while a review of the existing MiFID I regulatory package is necessary; the proposals contain "fundamental flaws" that must be corrected "as a matter of urgency" if serious damage to the EU financial services industry is to be avoided.
Proposals on third-country access would create a Fortress Europe, states the report, forcing countries such as the USA and China out of affected markets, to the detriment of EU consumers. The paper also criticises the EU's crude 'one-size fits all' approach to the legislation, which ignores the sensitivity of information before a trade is made. This "not only risks damaging liquidity and reducing competition, but could also have a serious effect on market innovation", states the Committee.
The new category of Organised Trading Facilities (OTFs), aimed at ensuring all trading is conducted on regulated venues, is also called into question for its potentially burdensome impact on compliance and red-tape.