MiFID - simply more regulation?

MiFID is the replacement directive for the Investment Services Directive, and is due to come into force in November 2007. The general principle of MiFID is to bring harmonisation to European security markets; driving consistency in regulation but not reducing competitive market forces.

It has been developed by the Committee of European Securities Regulators (CESR) and will impact practically every financial services organisation that operates in Capital Markets. Moreover, there are likely to be ramifications for all organisations that operate with investment firms e.g. custody services, service providers, exchanges and even suppliers of technology services.

The impact of MiFID largely depends on the investment services your organisation carries out. Figure 1 gives an indication of the level of change a firm will have to implement as they move into MiFID compliance.

Specific interpretation, based on your organisational model, is required to assess position on the Quake Zone and similar work is required to draw a "heat map" for all services within a firm.

In its simplest terms MiFID, can be broken down into segments under 3 headings (colour coded in Figure 2) - Operational Set-up (blue), Trading Function (yellow) and Partners or 3rd Party Activity (green). By examining the Level 1 Directive, and both the Level 2 Regulation and Directive, it is possible to summarise MiFID in 16 segments. Out of these fall the Hot Topics that firms should be most aware of. Of course there are others beside these, but the Hot Topics are a good place to start when discussing MiFID.

The difficulty of assessing compliance is that MiFID is a set of interrelated articles at different 'Levels' and the 'Level 1' text must be read in conjunction with 'Level 2'. These multiple dependencies mean that simply building a gap analysis to assess compliance requires significant time and thoroughness. Bluerock's assessment tool (a proven software knowledge base containing every current MiFID article, fully x-referenced to Level 1 and Level 2 and related to each business type and role) saves time, assures rigour and reduces cost. It facilitates the delivery of an optimum strategy for compliance and, with Bluerock's knowledge of MiFID, can be used not only to perform a compliance health-check, but also to maximise business efficiency, or even find revenue opportunities for a firm to move ahead of competitors in a post-MiFID world.

In order to gain the best from this new regulation, Bluerock recommends a strategic approach be adopted, rather than simply aiming to assess the tactical issues related to compliance. The MiFID Case™ tool allows us to develop a compliance health-check but in addition we bring Change Management skills and the ability to assess IT systems. The outcome is not just a simple Gap Analysis but a strategic assessment of change and opportunities at an enterprise or at a business unit level. We can then help the business move forward with its change programme as highlighted in Figure 3.

Although more information is expected from the FSA and CESR, waiting could be detrimental and could leave an organisation in a position where competitors gain an advantage.

Investment firms are advised to act now.

The Transposition Date of January 2007 and the implementation date of November 2007 are very unlikely to move. The implementation date has already moved once and CESR are highly unlikely to want to move it again. In fact many firms would prefer these dates to remain fixed so that they can plan effectively.

This places severe pressure on businesses: planning for something that has a hard deadline without having all the information available. However, the Gap Analysis can be commenced as can the assessment of current state. Part of this process is the mapping of business areas, roles and responsibilities against the various MiFID articles.

MiFID Case™, the Bluerock assessment tool is ideally placed and will provide your organisation with a unique opportunity to fast track the assessment process. Its auditing capability gives assurance that the process has been carried out and this coupled with the significant knowledge of Bluerocks' consultants will give your firm the advantage as Europe moves towards accepting MiFID.

With this assessment in place the effort required to attain compliance can then be judged. Bluerock can then also assist with the strategic direction of the programme, both in understanding where a firm can benefit from change and also managing that change through to benefits realisation.

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