More of a whimper than a big bang for MiFID

The landscape of Europe’s securities market changes for ever next week with the entry into force on 1 November of MiFID, the markets in financial instruments directive.

With firms still struggling to get to grips with the far-reaching legislation, however, implementation is predicted to be anything but smooth.

MiFID is supposed to inject some dynamism into the EU financial services industry, allowing firms to trade across borders with a single EU ‘passport’. Competition will be boosted with investment banks allowed to muscle onto territory previously dominated by traditional securities exchanges such as the Paris-based Euronext and Frankfurt-based Deutsche Börse. Investor confidence is to be strengthened with new consumer protection requirements aimed at ensuring clients get the best possible deal.

But next week will not bring the big bang previously predicted by experts. Such are the levels of disarray among firms and supervisors, it seems that the regulation will properly come into being only after a long and tortuous process of legal trial and error.

Piia-Noora Kauppi, a Finnish centre-right MEP, said: "Some of the MiFID articles are written in such a way that you will have to go to court to test their implementation." She predicted legal challenges from the European Commission objecting to member states making extra demands or ‘gold-plating’ new rules.

The UK and Romania were the only countries to have written the regulation into their national laws by the original transposition deadline of 31 January. Spain and Greece are on course to flout the new deadline of 1 November. With the playing-field far from level, further differences in member states’ interpretation of the rules could create legal chaos.

The conditions for MiFID’s birth are less than ideal, with a dearth of technical expertise among financial services firms about the roll-out of the regulation. A study by Brewin-Dolphin, a London-based investment firm, released last week found that seven out of ten technical advisers fear that their firms will not be MiFID-compliant on 1 November. The survey, which covered more than 200 firms, also found that 80% of advisers felt MiFID had not been properly explained by regulators.

"Partly because of the rush, there’s scope for teething problems. We’ll just have to wait and see what happens," said a London-based investment expert. "Even in the UK, where legislation was implemented on time, there’s still a lot of scrambling around to get everything ready.

"It’s not only a question of being transposed, but also coming into force at the same time and giving firms time to work on the necessary system changes," he said. With an ongoing banking crisis simmering in the background, firms are being cautious about building new IT systems to meet MiFID standards.

The Paris-based Committee of European Securities Regulators (CESR), an umbrella group of EU watchdogs, has struggled to provide necessary guidance to member states, partly because of "time pressures" and a general "lack of resources", according to Kauppi.

This week (22 October), CESR published measures aimed at clearing up last-minute concerns and ensuring smooth implementation of the directive.

One of the main issues covered was the supervision of cross-border firms, a task that will be undertaken by home regulators and by regulators based in countries with branch operations. Regulators in smaller countries had feared that they might be overruled by their larger counterparts, even in cases where branch operations represent a substantial chunk of the market. CESR advocated collaboration between supervisors, with structures for requesting regulatory assistance where necessary.

CESR also addressed concerns about uneven implementation among member states, announcing that firms from countries which have not yet transposed the directive will be allowed to continue using ‘passports’ granted under MiFID’s predecessor, the 1993 investment services directive.

Despite the long road ahead, not everyone is despondent. "It won’t be anything like a big bang because the market won’t be transformed overnight," says Michael Snyder, chairman of the City of London’s policy and resources committee. "There’s still a lot of detail to work out and implementation will require a lot of continued efforts, but the world’s leading financial centre is ready and fully supports the market-opening it will bring."

The landscape of Europe’s securities market changes for ever next week with the entry into force on 1 November of MiFID, the markets in financial instruments directive.

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