Global Economics

MiFID Arrives: Are Europe's Banks Ready?


Under the new regulations, European investment organizations must comply with stricter reporting and trading requirements

MiFID, the European investment banking regulation, comes into force today and banks will be hoping their preparation for the big day has paid off.

MiFID (the Markets in Financial Instruments Directive) is Europe's attempt to make financial trading easier and fairer across the continent's borders.

It was originally intended to launch in April 2006 but was put back by the European Commission to 1 November this year to give businesses a better chance of complying.

Investment organisations have had to change processes and systems to comply with the stricter reporting and trading requirements of the new regulations. Companies now need to prove best execution on deals, taking into account issues such as cost, price, speed and venue.

This side of MiFID is expected to prompt greater use of algorithmic and automated trading systems, which can quickly work out the best trading venues and provide a clear audit trail.

Companies will also have to publish more information on trades than they have done previously, which means new comms infrastructures must be put in place.

The Financial Services Authority (FSA) has said the UK industry is well prepared for the new regulations. But there have been suggestions some organisations may have issues with the record-keeping side.

The FSA estimates that around 12,000 firms in the UK will be affected by MiFID.

There have been questions raised about the extent to which smaller domestic players - which are also required to adopt MiFID - will benefit from it.

In the run up to today's deadline, there has been much debate about what the exact requirements of MiFID are but analysts agree as long as banks are showing they are working towards compliance, the FSA will work with them to finish the job.

But persistent failure to address MiFID could lead to private and public warnings from the FSA, fines and - in the worst case scenario - closure of the firm.

Analysts feel non-compliance could also have a commercial impact as customers may choose to go with organisations that are fully MiFID-compliant, rather than those that have been found to be less so.

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