12th November 2008
4114 pages of regulation counted ahead MiFID 1 year anniversary conference
During the year since the introduction of MiFID APCIMS has counted 4114 A4 pages of FSA regulation information which our firms have to review. As delegates gather to celebrate 1 year post MiFID in Brussels APCIMS are saying there is no need for more regulatory initiatives. In the light of our members’ contributions to the economy it is wrong that our industry in being swamped in regulation at a time when they need to be concentrating on running their businesses.
Ahead of the MiFID one year anniversary conference in Brussels tomorrow (on November 13th) David Bennett CEO of APCIMS said:
“We fully recognise the need to protect investors and to open up the European market. However MiFID should have been the last word in regulation.
“MiFID has been expensive to implement with no discernable benefits for firms or clients. It needs to be given time to bed down, yet a steady flow of regulatory initiatives from the FSA continues to buffet our industry. These initiatives are not required by EU legislation and come at a time when businesses should be focused on core activities.
“It is important to distinguish between the need for global regulatory initiatives (to protect consumers during the current crisis) and unnecessary initiatives which burden smaller firms.
“Despite our services to savers and contributions to UK economy the private client management industry is being hit hard by the cost of ever increasing levels of regulatory initiatives. Many firms, particularly the smaller ones, have had to take on extra staff just to cope with the mountains of regulation which is thrown at this sector.
“Since MiFID was brought in one year ago the FSA has churned out 4114 of guidance with the effect of new regulation. Regulatory initiatives come thick and fast and are often communicated in the form of reports or even speeches. It is incumbent on firms to assess the applicability of each of their business and if necessary allocate significant resources to their implementation. Much of the FSA guidance is not subject to consultations or cost benefit analysis, making them expensive and unjustifiable.
“Senior management and boards of our firms are being required to devote disproportionate amounts of time on implementing regulatory guidance given the current market turbulence. This is a time when management needs to be focused on protecting their clients, their businesses and market stability.
“These burdens come in an economic climate when our members are most vulnerable. It is strange that with £400 billion under management the FSA is hitting an industry hard which is a significant contributor to the public purse.
“The main regulatory pressures on the private client industry include telephone taping and the Retail Distribution Review. In many instances the FSA adopts a one size fits all approach to financial services and illustrate that the regulator does not understand our industry.
“On the first anniversary of MiFID we are calling for less regulatory initiatives our message is ‘let MiFID bed down’ before introducing anymore burdens on our industry.”
- ENDS -
For more information please contact:
Dirk Paterson, Head of Communications, APCIMS
on 020 7448 7100
Mobile: 07507 855 428
Email: dirkp@apcims.co.uk
Notes to editors:
APCIMS
- More than 12 million people in the UK currently invest directly in stocks and shares and other financial instruments to secure their financial futures
- APCIMS represents over 140 firms all over the UK who deal primarily in stocks and shares on behalf of individuals and the institutions in which we have our money
- Around £400 billion of the country’s wealth is under the management of our members
- Our aim is to ensure that the regulatory, tax and other changes across Europe minimize impact on the investment community
- We want to lead the debate on regulation in Europe, with UK regulators and with British parliamentarians to make sure consumers are protected while at the same time our industry flourishes in the UK
MiFID
The Markets in Financial Instruments Directive (MiFID) as subsequently amended is a European Union law which provides a harmonised regulatory regime for investment services across the 30 member states of the European Economic Area (the 27 Member States of the European Union plus Iceland, Norway and Liechtenstein).
The main objectives of the Directive are to increase competition and consumer protection in investment services. As of the effective date, 1 November 2007, it replaced the Investment Services Directive.
MiFID is the cornerstone of the European Commission's Financial Services Action Plan whose 42 measures will significantly change how EU financial service markets operate.
MiFID is the most significant piece of legislation introduced under the 'Lamfalussy' procedure designed to accelerate the adopting of legislation based on a four-level approach recommended by the Committee of Wise Men chaired by Baron Alexandre Lamfalussy. There are three other 'Lamfalussy Directives' — the Prospectus Directive, the Market Abuse Directive and the Transparency Directive.
MiFID retained the principles of the EU 'passport' introduced by the Investment Services Directive (ISD) but introduced the concept of 'maximum harmonization' which places more emphasis on home state supervision. This is a change from the prior EU financial service legislation which featured a 'minimum harmonization and mutual recognition' concept. 'Maximum harmonisation' does not permit states to be 'super equivalent' or to 'gold-plate' EU requirements detrimental to a 'level playing field'. Another change was the abolition of the 'concentration rule' in which member states could require investment firms to route client orders through regulated markets.
Key aspects of MiFID
Authorisation, regulation and passporting
Firms covered by MiFID are authorised and regulated in their "home state" (broadly, the country in which they have their registered office). Once a firm has been authorised, it will be able to use the MiFID passport to provide services to customers in other EU member states. These services will be regulated by the member state in their "home state" (whereas currently under ISD, a service is regulated by the member state in which the service takes place).
Client categorisation
MiFID requires firms to categorise clients as "eligible counterparties", professional clients or retail clients (these have increasing levels of protection). Clear procedures must be in place to categorise clients and assess their suitability for each type of investment product. That said, the appropriateness of any investment advice or suggested financial transaction must still be verified before being given.
Client order handling
MiFID has requirements relating to the information that needs to be captured when accepting client orders, ensuring that a firm is acting in a client's best interests and as to how orders from different clients may be aggregated.
Pre-trade transparency
MiFID requires that operators of continuous order-matching systems must make aggregated order information on "liquid shares" available at the five best price levels on the buy and sell side; for quote-driven markets, the best bids and offers of market makers must be made available.
Post-trade transparency
MiFID requires firms to publish the price, volume and time of all trades in listed shares, even if executed outside of a regulated market, unless certain requirements are met to allow for deferred publication. (Note see comment above regarding extension of these requirements to other financial instruments).
Best execution
MiFID requires that firms take all reasonable steps to obtain the best possible result in the execution of an order for a client. The best possible result is not limited to execution price but also includes cost, speed, likelihood of execution and likelihood of settlement and any other factors deemed relevant.
Systematic Internaliser
A Systematic Internaliser is a firm that executes orders from its clients against its own book or against orders from other clients. MiFID treats Systematic Internalisers as mini-exchanges, hence, for example, they will be subject to pre-trade and post-trade transparency requirements (see above).