There has been talk of deregulating London to keep it competitive after Brexit. MiFID II would be a good place to start, writes Brian Caplen.

Goldman Sachs CEO Lloyd Blankfein has been Trump-like in his use of Twitter to get his message across. Put simply, if the UK’s Brexit deal is not to his liking, Goldman Sachs’ bankers are decamping from London to either Paris or Frankfurt. He has put out positive tweets about his recent visits to both cities.

The British government needs to come up with some new incentives soon if it is to keep banks in the UK and limit the damage to the financial sector from Brexit. MiFID II, which comes into force in January and is likely to have huge unintended consequences, provides such an opportunity.

The big concerns about MiFID II, as outlined in a recent article in The Banker, are around reduced liquidity, less research covering just the larger companies, and fewer bigger investment managers. Large firms such as Goldman are better placed to deal with the changes and the costs of new infrastructure than smaller ones.

But one big modification that could relieve a lot of pressure on all banks would be a more sensible approach to the volume of data required for transaction reporting. This requires banks to fill in 65 fields including both counterparties’ nationality, passport number, date of birth and home address.

A recent report from Jefferies on MiFID II’s unintended consequences says that having so much data stored in one place provides “one-stop shopping for cybercriminals”. The firm also questions whether EU regulators can handle such a volume of data. “The newly created ‘glut’ of data creates too much noise to initially measure and enhance market integrity," says the report.

Some aspects of MiFID II, such as the requirement to record conversations, clash with the strictures of the EU’s General Data Protection Regulation, putting firms in a bind as to which regulation should take priority.

The aim of MiFID II is to make markets work better, to protect investors and introduce transparency. But it is unclear what this huge data collection operation ​​contributes to this goal. Reforming this aspect of Mifid could keep Mr Blankfein happy without UK regulators being accused of going soft on banks. 

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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