Requiring compliance with the Directive by November 2007, MiFID presents significant challenges to companies operating in the European financial markets. Firms currently covered by the Investment Services Directive will be subject to MiFID but new categories of firm not previously subject to the ISD will fall within the remit of MiFID. Investment Banks, Stock Brokers and Broker Dealers, Futures and Options Firms, Commodity Firms, Corporate Finance companies and Portfolio Managers are all likely to be affected.
Extensive changes will be made to the regulatory framework in Europe . However, although the broad areas of regulation affected are identifiable the detail is still being discussed. This inevitably leads to challenges in determining the scope and detail of effort required to comply with the new rules. The main areas impacted are,
- Organisational requirements - there are more extensive requirements for systems and control including compliance, risk management and the arrangements covering outsourced activities.
- Conduct of Business - categories of clients are changed and the level of regulatory protection given to clients will also change. Further problems may also arise in administering protection for individual transactions, a particular service or in general. It is likely that processes for classifying clients will have to change.
- Appropriateness and execution only business - there will be changes to the rules covering which investment products can be provided on an execution only basis. New processes will be required for assessing the experience and knowledge of clients in relation to the services they require.
- Best execution - Firms will be required to take all reasonable steps to ensure that relevant factors including price, cost, speed and likelihood of execution and settlement are taken into account so that the best possible result for the client is achieved. Firms will be required to have procedures that ensure this is fulfilled and communicated to clients.
- Reporting information to clients - changes may be needed to reporting systems as a result of reduced flexibility in the frequency and content of client reporting.
- Pre and post trade transparency - MiFID introduces a new transparency requirement for firms that are termed Systematic Internalisers (a firm that on a systematic, organised and frequent basis deals on its own account by executing orders outside a regulated market or multilateral trading facility). Systematic Internalisers will be required to provide firm prices for liquid shares on a continuous basis.
- Transaction reporting - there will bean increase in range of instruments reported. For example commodity instruments will now included in transaction reporting requirements
42 Solutions can help address the challenges presented by MiFID through its detailed knowledge of financial services, business process analysis expertise and experience in managing and implementing complex financial services projects.
