Speaking at the International Capital Markets Association breakfast briefing in London on 1 March, Bailey said the avoidance of market disruption was the highest priority for the regulator during the implementation of Mifid II, which came into effect on 3 January.
He reiterated the regulator’s commitment to a proportionate approach to enforcement under Mifid II and said it was striking a balance between its objectives and market continuity.
“Sometimes I get challenged on this, on the ‘rules are rules’ basis – it doesn’t matter what happens to markets as long as the rules are obeyed,” Bailey said, before rebutting that point.
The FCA boss said the way systems coped with recent market volatility highlighted how smoothly Mifid II’s implementation had gone. “It is, of course, very early days. But we can now say that the new systems have accommodated heavy trading as market volatility spiked in February, and stood up to the test.”
No adverse affect
Bailey added the changes appeared to have not adversely affected liquidity across equities, bonds and derivatives. On bonds in particular, he said: “It is hard to pick out any particular Mifid II effects on bond spreads given all the other developments in markets over the last two months.”
However, he said there was still work for firms and regulators to do, particularly around reporting. The thematic work the FCA will conduct over the next year on Mifid II will be outlined in the 2018/2019 Business Plan, he said.
The FCA estimates it will capture up to 35 million transaction reports a day under Mifid II, up from 20 million before its introduction.
Bailey said the FCA will “exploit the full possibilities of these data” to deter, detect and punish market abuse.