10 April 2006

FT: Financial services groups ‘ignoring directive’

Board members at many financial services companies are paying scant attention to a new European Union directive that is set to trigger a dramatic overhaul of regulation in the sector, research has found. Nearly 50 per cent of executives working on the markets in financial instruments directive say their superiors have a 'poor' or 'very poor' understanding of its implications, according to a survey by KPMG and the Economist Intelligence Unit. The directive, which must be implemented by November 2007, is likely to force a systems shake-up at many financial services companies and will demand changes to the way they deal with customers and regulators.

But the survey results, which cover the whole EU and are published today, point to a lack of preparedness. Some 71 per cent of institutions have not yet assigned a project leader to oversee Mifid implementation and 83 per cent have not allocated a budget.

The directive's goal is to increase cross-border competition and improve investor protection by replacing a patchwork of national rules with harmonised EU-wide regulations. But the research suggests that many institutions - to the extent they are thinking about Mifid at all - see it in narrower terms.

Jonathan Jesty, partner in regulatory services at KPMG, said: 'Despite an awful lot of publicity, there still seems to be a low level of board buy-in and awareness.'

Institutions are divided between those that see Mifid as a compliance and IT chore and those that view it as a 'strategic opportunity' to reform their operations and win new business, the report says. 'Companies have to ask: are there some genuine business opportunities, chances to improve control structures, or to obtain synergies with the implementation of other projects?' said Mr Jesty.

Even the Financial Services Authority, the UK market regulator and one of the EU's most influential watchdogs, has expressed doubts about whether the benefits of Mifid to the UK will justify its costs.

The survey revealed some recognition of Mifid's purported upside. Thirty-seven per cent of respondents said common regulatory standards would make it easier for them to do business across Europe and 24 per cent said they would be able to sell more investment products outside their home market.

Investment banks and asset managers were seen as the most likely winners while high street banks and retail stockbrokers were least likely to gain. Overall, 24 per cent of respondents said they expected no significant benefits.

The survey covered 199 respondents across Europe, most of them in senior management positions below board level. It was carried out in January before the European Commission published draft implementation guidance that clarified the details of many Mifid requirements. EU member states are negotiating a final version of the guidance.

By Barney Jopson

© Financial Times