Source: Peter Evans Associates
The cost burden of compliance with the EU's Markets in Financial Instruments Directive (MiFID) will be felt by financial institutions long before its benefits are realised.
That was the message from APCIMS Chief Executive Angela Knight at the peterevans Forum event last week (21 June).
"While it’s a fair assumption that increased competition across borders will lead to greater innovation and more trading opportunities for practitioners, the initial costs of complying with MiFID’s proposed regulatory framework is where UK institutions will feel the force of the new Directive in the short term," she said.
This Directive was actually designed to reduce the cross border barriers between EU countries for wholesale. However, the reality is that the changes for retail firms is much greater.
The peterevans-hosted event, titled ‘MiFID: A Passport to Europe or Certain Cost but Uncertain Benefit?’ addressed industry concerns about the scope of the Directive’s influence on existing trading activities and levels of consultation with the sector.
The Directive, which aims to open up cross-border trading in the EU, forms a central pillar of the EU’s Financial Services Action Plan and is due for implementation in April 2007.
"Through MiFID the European Commission is seeking to harmonise the trading requirements on regulated markets in Europe and the regulations that govern how investment firms operate. This in itself presents a significant challenge as the natural differences of home markets in the EU has led to divergent methods of managing and working with money. Even terminology is different, for example the definition of what constitutes a “derivative” varies across EU countries. This will inevitably lead to discrepancies in implementation and while the cost of change will be met over the next 18 months, the benefits could be as much as 10 years away." she added.
However, there were likely to be benefits to the private investor appearing over time following the ‘bedding in’ of the legislation, she said.
"MiFID will require that investment firms execute orders in a way that provides the overall best results for the client under its ‘best execution’ obligations, which should be viewed as a confidence booster for the private investor. And if MiFID works then it will become easier for firms to take on clients in other countries, promoting greater choice."
peterevans Managing Director Mike Foley said the right approach to technology would be critical for financial institutions.
"Positioning your institution to meet the requirements of MiFID will involve a close focus on IT architecture, particularly if you are to take advantage of the potential opportunities in MiFID such as cross-border trading," he said.