As Europe becomes a single financial market, many market experts thought that CESR having been created, had the potential as an ongoing Regulatory body, and that it would eventually become the powerhouse of central market regulation. Local regulators would continue but be left as police outposts to enforce central policy. The standardisation of compliance is an obvious objective and CESR operating as a central regulatory hub would achieve this and ensure that rule interpretations are kept to a minimum, if not outlawed. A little like a football referee trying to implement common enforcement of the rules, but we all know the problem that brings on Champions league nights!  

The FSA is the biggest and arguably the most powerful regulator in our time zone, with all the largest global banks under its umbrella, but if Brussels sets up a CESR type central regulatory body, with the necessary powers, the FSA would be sidelined with only one vote and the same influence as any of the smaller markets. This does sound a worrying outcome if implemented, as with due respect to other regulators in the EU, it is the FSA that has the most expertise and capability, far beyond any other regulatory body in any market and dare I say Brussels itself.

The implementation of MiFID has been a chequered success to date, with some things working well and some not so well, at the moment. We can already see that the order/execution supplier chain is moving away from the traditional Stock Exchanges to other venues. With an ever increasing number of venue choices, this will only escalate throughout the years. This obviously devalues the existing Stock Exchanges and will also shift existing regulatory control from the FSA to other local regulators. Hence, not only will the Stock Exchanges have to fight a bloody war to save their business, but so to will the FSA!

Many other business and operational areas of change within the various MiFID articles have yet to be tested because it's too early in the regulatory change process. It maybe a year or two before the initial rules created because of MiFID are adjusted to accommodate precedented changes. This probably will not be in the public domain until next year after the annual audit and regulatory checks come into full swing later this year. However, any sanctions against non compliance of new regulations brought in because of MiFID may never be made public, unless the information is deemed of importance and of value to the markets and investors, but in time the impact of MiFID will become more and more evident.

In this twilight world of post MiFID market changes, it will be mostly down to the local regulators to ensure their firms move towards compliance but this will need to be monitored centrally or at the first hurdle variances could be created.

The FSA have been operating a principals based compliance approach for the last few years and this is massively at odds with what most of Europe are adopting. There's the rub, because the FSA has allowed firms to be flexible in their interpretation of compliance with MiFID, the City of London market could become out of line with the EU single market, especially as Brussels are now going to redefine Best Execution in more detail, removing any flexibility, the principal based regulation of the FSA will be severely at odds and put compliance under enormous strain.

If the FSA buck the Brussels approach they will find themselves marginalised. The solution from Brussels could easily be to bring all local regulators under one single controlling umbrella.

It's clearly too early to determine the future of UK and wider European regulation but the intent of Brussels to ensure local regulators all sing from the same hymn book looks like a worrying situation for the future role of the FSA.