MiFID, which is nevertheless expected to be implemented with effect from 1 November 2007, is forcing investment firms and the vendor community to react.
According to a MiFID Readiness Survey, which was sponsored by Standard & Poor’s, Oracle UK and BT Radianz, more than two-thirds of sell-side investment firms are unprepared for MiFID. Eighty per cent of respondents said their organisations either had no MiFID compliance framework in place – or if they did, they did not know about it.
Bob Fuller, co-chairman of the IT Subject Group of the MiFiD joint working group, commented: “Getting ready for MiFiD is far from ‘job done’ although firms are already thinking about the next steps to tackle the technology challenges.”
The lack of readiness is partly attributed to delays in the final version of the Level 2 process, which is due out next month and outlines the technical details of the measures agreed at Level 1. At a high level – Level 1 in the EU terminology – MiFID requires better client protection and additional transparency. The missing detail required to define a precise strategy takes shape with Level 2, which outlines technical details of measures at agreed Level 1, and will be finalised towards end of 2005 by the European Commission.
The UK market is also awaiting the FSA’s release of its own consultation paper on Level 2, which is expected in February 2006. Elsewhere in Europe, almost 30 national regulators will do the same.
Nigel Matthews, director of capital markets at Oracle, fully acknowledges that it is still too premature to attempt to identify exactly what all the changes from MiFID will be. It is said it will certainly impact data volumes.
“There is clearly a big challenge in storing more data from the impact of MiFID,” Mr Matthews says. “However, one of the biggest challenges could be in the whole issue of re-constituting data. If the regulators call on institutions in subsequent years to prove that best execution was undertaken for their client, will they be in a position to re-constitute that data four years down the road?” he added.
While applauding the work of the MiFID joint working group (JWG), Gary Wright, managing director of CityCompass Research, argued that you cannot deal with the implementation issues until they have been communicated by the users, and the “watershed moment” will probably be when the UK’s FSA issues rule book changes. The JWG will then have something solid to work from, but a solution “cannot be found unless you know what the problem is first,” added Mr Wright.
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