Markets in Financial Instruments Directive(MiFID) |
| MiFID, as the Markets in Financial Instruments Directive is popularly known, is a European initiative spawned from the Investment Services Directive (ISD). The ISD was implemented in 1995 and subsequently amended in 2000 at the Lisbon Convention. This has been re-badged as MiFID. |
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| MiFID aims to change the ways that the investment market is operating and to bring a standardised approach across all the 25 European partners (plus Norway, Iceland and Liechtenstein). It will make a major change in the way financial services are regulated and the way the European market interacts with its customers, thus producing the greatest challenge to all types of financial securities firms in over 20 years. |
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| MiFID is only months away and the timescales for brokers, fund managers and the investment banking community to comply with the November 2007 deadline is extremely short. This creates a huge challenge for everyone, within the business and IT community. Failure to comply could result in sanctions, closure of niche business or - potentially suspension from trading.
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| MiFID is a business change program rather than a compliance issue and impacts all areas of all types of securities firms. There will be a major impact on the front office. There will also be changes to IT and all back office and settlement areas as shown in the diagram below (adapted from the FSA document 'Planning for MiFID'):
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| There is no escape for all firms that are currently regulated and the first step is a reclassification exercise coupled with the need to educate their investing clients about the new contractual arrangements. New and revised documentation must be signed and returned to their agents before the 1st November 2007. Failure to do so will cause the dealing arrangements to be suspended until signed contracts are received. This client relationship activity should be well under way now. It is a vital step in ensuring continuance of the dealing contract.
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| There are important corporate governance challenges. MiFID is the responsibility of the Board of Directors, frequently devolved to senior management and non compliance will bring into question corporate governance of the enterprise and leave the board, individual directors and senior managers open to the possibility of legal sanctions. |
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| Whilst the final shape and size of MiFID will not be known until later this year (the FSA is due to report back with their final rulings on the Level 2 directives in October 2006) there is enough presently known for firms to work at the challenging task of getting their business MiFID compliant. Firms must align themselves quickly to the MiFID Directive and detail their strategy and implementation plans to ensure that they are ready in good time. This is perhaps the most challenging business change programme to affect the City for many years. The benefits and rewards will be there for the early players; the very essence of survival could be at stake for those that 'miss the boat'. |
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| Patni has extensive experience working with Financial Institutions. We currently work with major banks on risk and compliance programmes including Basel II and SOX. Our skill sets are complemented by industry specialists who are in the fore-front of MiFID thought leadership as members and regular participants at the Joint Working Group and Sub Group meetings.
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