The Markets
in Financial Instruments Directive (MiFID) is a European Union
directive aimed at allowing financial services firms to compete
across Europe’s borders. It says that financial services firms
should be able to operate across Europe as long as they are
accredited and regulated in their home country.
The UK is one of only three EU nations to have met the deadline
for turning the Directive into law of 31st January 2007, and the
law comes into force today.
The BBA warns, though, that only the bigger financial
institutions will realistically benefit from the change. “Smaller
financial institutions, particularly non-banks, will be less
well-placed to derive any significant benefits from MiFID,” said
the organisation in a statement. “The high implementation costs
needed to maximise their opportunities may exclude them from
changes for the moment.”
The BBA said that the companies most likely to benefit are
larger firms, who have an opportunity to increase the size and
scope of their business. “Large banks and exchanges are best placed
to benefit for the coming changes,” said the BBA. “Many of them
have followed the negotiations closely and have well-developed
project teams in place. The bigger the bank, the lower
proportionately are the implementation costs.”
The change will affect all financial services firms offering
services such as share trading and investment advice, whether they
want to trade across Europe or not. Financial regulator the
Financial Services Authority (FSA) is changing its Handbook of
rules governing financial services to take account of the new law,
which means that all firms subject to MiFID will have to change
their practices.
According to the FSA, this includes firms such as investment
banks; portfolio managers; stockbrokers and broker dealers;
corporate finance firms; many futures and options firms; and some
commodities firms.
A recent survey revealed that 64% of firms in the UK are
struggling to cope with the demands of the new rules. Think tank
JWG-IT said that that proportion of financial services firms are
finding it hard to cope with requirements to keep records in a
different way. The new rules demand that files are kept for five
years after an event, and for the duration of the relationship with
a client and sometimes longer.
The new law replaces laws deriving from the Investment Services
Directive, which is being repealed.
Only the UK, Ireland and Romania have managed to meet the
deadline of 31st January for implementing the Directive, though
most others have implemented it since then. Spain and Poland will
not be compliant before today’s deadline, the European Commission
has said.
The BBA said that the changeover to the new rules has already
cost the financial services sector significant sums of money. “This
week sees the culmination of many years of very hard bargaining by
virtually everyone who has ever taken an interest in financial
services,” said BBA executive director for wholesale banking
Micahel McKee. “The major European financial firms have already
spent some years and millions of pounds preparing for this change,
but as with all change there are likely to be some winners and
losers.”
McKee said that the UK was, though, better placed than most
places to take advantage of the changes and the potential increase
in the number of markets available to firms. “London is the world's
financial capital – its concentration of expertise, experience and
financial acumen put it in pole position to reap the benefits of
this harmonisation in the future,” said McKee.
The BBA said that all is not lost for smaller firms. Those that
embrace the change could benefit, it said. “Smaller banks will reap
the best benefit from MiFID by using it to differentiate their
service offerings from their competitors,” said the BBA statement.
“Private banks will, however, be pressed to combine the new
regulatory requirements with their traditionally bespoke services
to clients.”
