Money may well make the world go around but at what cost? At last, the FSA has indicated the projected cost of the mighty Mifid. For those who have not been keeping up with events, the markets in financial instruments directive is a huge piece of European legislation that aims to create a single market for financial services across Europe.
The FSA has said that firms will incur a one-off cost of up to £1.17bn with additional costs of £88m to £117m each year. These costs are mainly connected with IT changes and staff training.
Mifid is calculated as providing £200m a year of direct benefit to firms as a result of cuts in the cost of compliance and transaction fees. No great surprise – the costs of implementing Mifid are greater than the proposed benefits.
If we read the FSA’s 2006/07 business plan, we can see there is a clear indication of its intention to move away from detailed rules towards an approach to regulation based on principles. It will be interesting to see if European directives aid or hamper this intention.
The Commission for European Securities Regulators is maintaining its timetable for the finalising of the national rules in January 2007, with implementation planned for November 2007. There is obviously not much time left for the industry to get ready for the required changes including, for example, the complete rewrite of the conduct of business rules following the consultation period.
Speak to Fay Goddard at Aifa about the effect of Mifid and this will give you food for thought.
As you read this, the closing date of the FSA’s consultation on how business can be conducted will have passed and we wait with bated breathe to see if the FSA writes additional rules on top of the content of Mifid.
It makes perfect sense that EU countries with fewer compliance restrictions can offer cheaper products with more flexibility.
When the investment net widens, anyone in the EU can start investing in UK financial services through UK advisers. I wonder if UK IFAs will welcome with open arms non-UK residents as clients.
I certainly would not have the knowledge of taxation in the client’s host country. It may be that I may not able to provide best advice.
With over 30,000 products now available to UK IFAs, the complexity of choice widens as Europe opens up. This will make product choice difficult for investors as the choices from particularly France and Germany may seem initially attractive but are not that easy to access if providers decide not to bother crossing borders.
For the big European banks and investment houses, Mifid holds good news as the barriers to cross-border promotion are removed. However, it is likely that this benefit will only be maximised by the big boys who can afford to undertake pan-European sales and marketing activity.
As we all know, cost/benefit analysis can be woefully out of synch. Take the Olympics as an example. The new estimate for the London Olympics puts the cost at £3.3bn, which does not include a revised security bill or regeneration costs. Critics say the figure is more like £8bn while Ken Livingstone is trying to convince us all that the Olympics will generate a profit.
So Mifid and the Olympics will both prove to be very expensive but at least I know which will result in an immediate benefit. The regeneration of East London and the surrounding areas, which is being seen now, will provide immeasurable improvement in the medium term to those living in some of poorest and most ethnically diverse areas in the UK. Admittedly, there may not be a massive financial gain from the Olympics but if only MifiD could somehow benefit the population.
Every inherent cost of an IT system change or training programme that is introduced by a financial services provider is recouped by increasing the cost of products and services for clients. I would rather invest my money in a ticket for the men’s 100 meters final than a fancy continental European financial product.
Kim North (kim@tech andtech.co.uk) is director at Technology & Technical