MiFID’s first deadline has passed and only three EU members are in full compliance. Alan Duerden assesses whether the European Commission can realistically punish so many offenders.
While the term D-Day has become synonymous with the largest amphibious assault in military history, M-Day – as it has now been coined – will no doubt become synonymous with the largest regulatory assault in financial history.
First outlined by the European Commission in April 2004, the Markets in Financial Instruments Directive (MiFID), a European legislation aimed at harmonising the trading of securities across Europe, came into effect on M-Day (November 1 2007) and replaced the existing Investment Services Directive (ISD).
Initially set out in 1993, the ISD provided the legislative framework for investment firms and securities markets in the EU, providing for a single passport for investment services across the now 27 EU member states.
According to the UK’s Financial Services Authority (FSA), MiFID has the same basic purpose, but makes significant changes to the regulatory framework to reflect developments in financial services and markets since the ISD was implemented. MiFID does this in a number of ways:
While MiFID has been on the radar of financial institutions and regulators across Europe for a number of years, the transposition and adoption of the regulation has been sluggish. EU member states were given a deadline of January 31 2007 to implement measures into domestic legislation. However, in April of this year the European Commission reported that only three member states – the UK, Ireland and Romania – had signed MiFID into their national legal frameworks. On the back of this, the EU Internal Market Commissioner, Charlie McCreevy, said the Commission had started legal proceedings against the 24 member states that had failed to meet the Directive’s first deadline.
Despite its tough talk, the Commission has found it hard to chase in the laggards and enforce the adoption of the directive in every country by the due date, with only 16 EU countries transposing the regulation as of September 2007.
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“When MiFID first came about it was assumed that none of the new EU member states from the eastern end of Europe would be able to do anything and that they would be dragging along behind,” explains Chris Pickles, industry relations manager at BT Global Financial Services and chairman of the MiFID Joint Working Group. “Actually they were some of the first to comply with MiFID and to meet the deadline.” |
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According the Dr Anthony Kirby, head of risk, regulation and research (capital markets) at Accenture, and chair of the MiFID JWG Best Execution Subject Group, one-third of the innovation budget in banks is spent on regulation and this will be up to two-thirds by 2012. “Over time the cost of regulation will ramp up and it will be very expensive for firms to jump the hurdle of all these regulations at the same time,” he says. “70% of the money that firms spend on regulation goes on three regulations – MiFID, Basel II and AML/KYC.” |
