Implementation of MiFID requires a well-planned, well-structured and centrally coordinated effort, it must also be cost-efficient and systematic. By Sandeep Todi and R Vaidyanath.

The Markets in Financial Instruments Directive (MiFID) is likely to cause firms to revise their strategic goals and organisational policies, their internal workflows and procedures and, most importantly, their IT systems and reference databases.

Implementation calls for a well-planned, well-structured and centrally coordinated effort. Investments will have to be made to acquire the appropriate technology and/or hire new resources. I-flex solutions has developed a six-step approach to compliance that is both cost-efficient and systematic.

Step 1: Evaluating existing business models

A MiFID implementation programme can be initiated only after a thorough understanding of the firm’s current business model. Evaluating and documenting current strategic objectives is the primary task of the implementation effort. Business processes need to be evaluated and traced for documentation and services classified. The evaluation of the IT infrastructure also forms part of Step 1.

Step 2: Conducting ‘gap analyses’

Specific requirements related to MiFID and their impact must be analysed. Evaluation must take into account the cost-benefit analysis of implementing MiFID requirements.

High-level ‘gap analyses’ between current and required models can then be conducted. This analysis must clearly specify the magnitude and importance of each ‘gap’ and list it in terms of its importance.

Step 3: Formulating a road map for the future

A road map for MiFID implementation can be drawn up by listing a fresh set of objectives along with key implementation goals. All stakeholders, including the senior management, must be part of this exercise.

MiFID implementation depends on the nature and scale of business operations and can be a long process. Priorities need to be set and detailed timelines established. Process owners and stakeholders of MiFID projects must be clearly identified and informed in advance.

Step 4: Re-engineering business processes

A future road map is always marked with changes in business processes. This provides a company with an opportunity to take a fresh look at its existing processes, improve overall efficiency levels and minimise costs. Opening new lines of businesses and similar restructuring exercises invariably impact existing business processes.

Before undertaking any business process change, a detailed study of the process architecture and business processes must be completed. Current workflows must be traced and analysed; new business processes defined and documented; and the impact of new and yet-to-be-implemented processes assessed for efficient service delivery.

Step 5: Implementation, individual project rollouts and infrastructure creation

Once processes are re-engineered, the actual implementation of IT projects, workflow documentation and infrastructure planning can be initiated. IT projects involve evaluating multiple technologies for best performance in real-time environments (best execution); identifying outsourcing vendors for non-core services such as pre- and post-trade reporting and transactions; and reporting and identifying technologies for the storage of data-related products, clients, securities and trades (reference data management).

The next step would be to collect requirements for high-priority projects and suitable vendors identified. In parallel, infrastructure procurement for new operations can be initiated and outsourcing considered.

Step 6: Monitoring and controlling the exercise

Every MiFID implementation will incorporate a supervisory role and it would be ideal for a firm to create a central compliance office. The need to identify and ensure availability of suitable resources will naturally emerge, and should be met by customised training programmes.

A steering committee for overall supervision, with representation from business, IT and compliance should be created with powers to approve and monitor all MiFID-related projects.

MiFID may be yet another regulation but it will usher in a whole new range of revenue-generating opportunities. For firms that adapt expeditiously to MiFID, opportunities will be greater and not limited to just equities; they could also benefit from a first-mover advantage in a more level playing field, with better pricing and cost transparency.

Sandeep Todi is a consultant, at i-flex Consulting. R Vaidyanath is practice head, capital markets, at i-flex Consulting. i-flex Consulting is the consulting arm of i-flex solutions.

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