The new legislation will change the environment in which banks and investment firms operate across Europe; in the UK these changes are seen as the most significant for 20 years and have been compared with ‘Big Bang’ — the deregulation of the City of London — but the impact is potentially much greater in the CEE states, which have only recently adjusted to the current regime and where current legislation and supervision is often less wide-ranging.
The MiFID reforms are designed to create a single European market across the European Economic Area by stimulating competition and making it easier to carry out cross-border trade using a common European rulebook for regulated firms. These include banks, investment firms, brokers and dealers, investment managers, stock exchanges, markets and trading platforms.
The new rules have been heavily influenced by how the Financial Services Authority (FSA) regulates the
Although MiFID is designed to harmonise financial services activities across
Some parts of the new regulations are directed at shaking up markets and stimulating competition, and MiFID will also result in the removal of protections enjoyed by some of the national stock exchanges in
MiFID deliberately enhances the competitive position of alternative trading systems (to be known as multilateral trading facilities) in the hope that electronic trading will increase competition and reduce transaction charges. MiFID also introduces a pan-European regime, initially in the equity markets, to achieve greater price transparency. For any one stock there should be a ‘feed’ of real-time information about the prices of trading across Europe from different venues (i.e. regulated markets — such as the national stock exchange — multilateral trading facilities and systematic internalisers). This feed will report the prices available and details of limit orders (pre-trade transparency) and the prices of transactions as they are concluded (post-trade transparency).
Trade execution will also change thanks to new processes that reflect best execution requirements and the wider choice of execution venues from across
There is also already a lot of discussion about regional or European hubs. Post-MiFID, the European legislation encourages banks to abandon separate national banks in favour of local branches of their European parent; many institutions are also establishing regional or European hubs to co-ordinate trade execution. In the CEE, this poses threats but also offers opportunities.
But the very style of Anglo-Saxon-type regulation will bring significant changes for institutions in the CEE — both locally incorporated banks and local branches of Western European institutions. For example, in retail sectors, there will be a much greater distinction between ‘advised’ distribution channels and services, which will be subject to a regulatory-driven ‘suitability’ assessment process, and ‘non-advised’ channels, where different processes will operate reflecting the MiFID ‘appropriateness’ requirement.
MiFID also regulates the internal organisation of banks and investment firms, which means that CEE institutions will need to adopt Anglo-Saxon style controls, particularly Chinese walls, and other systems to protect clients from possible conflicts of interest, not just within the corporate entity concerned, but viewed from a group perspective.
So what is being done to implement MiFID in the main countries in the region? In the
Unlike the
All banks and other firms in securities and investment markets will need to assess the impact of MiFID implementation. As well as the costs involved in achieving compliance in what is a very short time frame, for many firms MiFID will present significant threats and opportunities. The sooner firms address the implications of MiFID, the more likely it is that they will have first-mover advantage and minimise threats and maximise opportunities.
Iain Batty is CEE regional head of commercial at CMS Cameron McKenna.