We stand now less than six months before the 1 November deadline for the Markets in Financial Instruments Directive (MiFID) comes into force. The road has been long and fraught with delays and confusion since the Directive was announced as part of the EU’s Financial Services Action Plan. Barring any last-minute changes - which is conceivable given the way the regulators have kept moving the goalposts - implementation is almost upon us.
For several years now a gloomy picture has been painted around MiFID. Despite the benefits the directive is designed to achieve, including more efficient markets and increased competition between firms, independent observers and financial services institutions alike have claimed that the cost of readying IT infrastructures remains higher than any return they may receive.
Of course, banks should be used to meeting strict compliance requirements; the last few years have seen a raft of several major legislative changes. And with every new piece of regulation, optimists always highlight the benefits of compliance. But while legislation such as Sarbanes-Oxley and Basel was aimed at tightening processes and reducing risk, MiFID’s direct goal is to open up new opportunities.
Compliance and uncertainty
MiFID aims to create a single, seamless, financial services market in the European Union, maintaining overall efficiency and integrity of financial systems and creating a transparent framework for regulating order execution arrangements in European financial markets. It has meant a huge volume of work for many IT departments, notably in the fields of customer information systems, order routing, market data and communications infrastructure. Analysts have estimated that between 2006 and 2008, the industry will have spent around €1.5 billion on IT to achieve MiFID compliance. Although the situation across Europe is less clear, financial institutions in the UK are among the best prepared.
With final guidance still to be issued on certain aspects of the directive, many IT teams have either found themselves waiting until exact requirements are clarified before committing to further investment, or have made the necessary IT enhancements only to find they have had to start over again. Some are even looking to the situation in other EU states and reassuring themselves that if others aren’t completely ready, then they will not have to be either. It is still not clear whether regulators will strictly police every minor aspect of compliance from 1 November, or whether partial implementation in stages is acceptable. Industry figures have been very vocal on their dissatisfaction with how the directive has been handled - particularly around the delays and confusion over regulations - and continue to complain.