The MiFIR Review is the European Union's (EU) effort to modernise its rulebook, making trading more transparent and efficient. It's part of a wider push to simplify markets including derivatives and to ensure fairer access to data and trading. However, in the summer, the European Securities and Markets Authority (ESMA) launched a consultation looking for feedback from the industry on the best way to streamline the reporting of financial transactions across the bloc. This includes MiFIR, the European Market Infrastructure Regulation (EMIR) and the Securities Financing Transactions Regulation (SFTR).

PJ Di Giammarino, an independent RegTech authority, and Grant Haley, practice lead for transaction reporting and regulatory solutions at First Derivatives, talk to Lynn Strongin Dodds about the developments across the asset classes and in particular derivatives.

To set the scene, can you please explain why the European Securities and Markets Authority's (ESMA) decided to pause the proposed changes to MiFIR?

PJ: The root cause is that regulators are having problems piecing it all together. They are building a very complex and complicated system with 72,000 data points. That translated into scores of different datasets across 18 different regimes. That is clunky and cumbersome especially given the low-quality of the data. available,

The target is to reduce cost by 25% but there is no clearly articulated model for how to achieve this. We are talking about billions of dollars in budgets across the UK and the EU and in my view, it's stifling growth.

What do you think the outcome will be based on the consultation?

GH: We believe the most probable outcome is ESMA will recommend option 1a that splits reporting rules by product such as OTC under the EMIR, exchange traded derivatives under MiFIR and securities trading in SFTR. This may create additional market abuse challenges if certain OTC derivative products are no longer reported under MiFIR.

This could mean a shift to single-sided reporting, but it is not yet a certainty, since funds and venues have not lined up behind it. There is also a probability that back reporting ill be reduced.

Why has the delay widened the transparency gap between the UK and Europe. Is this due to Brexit?

GH: The delay to transaction reporting until 2028 and 2029 opens a transparency gap with the UK which are planning to implement its own plan next year. Brexit has had an impact. Before the UK left the EU, they were pretty much in lockstep, but we expect there to be significant differences. At the moment these are relatively minor, but the regulators are fundamentally taking different approaches and hence will be the source of divergence. For example, a trade may be eligible in one regime and ineligible in the other while a validation rule may be triggered in the EU but not in the UK, obliging operations teams to run dual interpretive playbooks.

PJ: I also think that the transparency gap alludes to the fact that actually the data quality isn't very good on either side and that is what both sides need to get it right. In our recent survey - Mastering MiFIR Divergence - we spoke to people at more than 20 firms where 36% were unconfident, and 55% were only somewhat confident in the accuracy and completeness of their data today.

What are some of the challenges specifically to the derivatives market and does it differ from other asset classes?

PJ: One of things unique to derivatives is that the International Swaps and Derivatives Association developed the Common Domain Model (an open-source, standardised data and process model) as well as the Digital Regulatory Reporting (DRR) that uses the CDM to automate and standardise derivatives trade reporting for various jurisdictions. This enables derivatives fund managers to align to common guard rails for their data quality and simplifies the complexity across the regions.

GH: Regulatory reporting overall acts as a window that allows the regulator to look inside an organisation. The analogy is to demonstrate that the data firms provide allows the regulator to see how well the firm and its functions operate or not. The challenges are not necessarily asset class specific but more due to the complex nature of regulatory reporting and in particular the complexity of derivatives markets. There are multiple functions across an organisation and pulling all the data together, whether it be for trading or clearing is difficult. This is because it sits across different systems, teams, functions, locations, infrastructure and message types.

Given the divergence what should the tech and operational priorities be?

PJ: The challenge is that divergence is now structural and accelerating. The EU pause guarantees that reporting frameworks will evolve on separate tracks for at least another cycle. Transparency standards that once aligned under MiFID II are now splitting into two regimes and we think it is important for firms to get their ducks in a row now. This means treating 2026 as a dual-track control year that gets systems and data ready. It also means getting different governance models because legacy approaches will not cope with the new demands. Silos should be broken down, and a single cross-sector team should be developed to ensure field alignment across transactions and funds.

There is a lot of hype about AI but how can firms leverage the technology for these rules?

PJ: The big picture is the AI doesn't fix bad data. In fact, it does the opposite and amplifies the divergence. It cannot deliver sustainable value without clean data, remediation of legacy breaks, and standardised, traceable, well-governed models. Once those foundations are in place, it can be a powerful accelerator but is not a replacement for core controls. For example, Ai can be used to document, connect, and maintain clear lineage from regulatory text to internal controls, processes, and data. Models can also automate data cleansing and remediation workflows as well as identify systemic weaknesses.

At the moment I am working with the FIX Protocol Trading Community's AI Working Group to look how it can be used as a wrapper around FIX messaging for compliance