MiFID compliance warning

Many firms in the financial trading sector are still adopting a 'wait and see' approach to MiFID by going for the cheapest, most basic level of compliance required by regulators.

Some of the big investment firms have embraced MiFID more warmly but experts warn that regulators will start to take action against non-compliant organisations later this year.

MiFID - the Markets in Financial Instruments Directive – came into force on 1 November 2007 and is Europe's effort to improve the way investment banks do business across the continent.

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Chris Pickles, industry relations manager at market infrastructure provider BT Radianz and chairman of the MiFID joint working group, told silicon.com many trading organisations have adapted their tech to comply to the minimum level of MiFID standards while only the larger firms are working to take maximum advantage of the new opportunities created by MiFID.

Pickles said: "While a couple of dozen continental investment firms are working to benefit from MiFID, a couple of thousand are still either unaware of what it means for their business, or are still turning a blind eye to MiFID in the hope that the regulators and their clients will somehow not change their traditional approaches to the market."

He added: "Most of continental Europe is still working at a MiFID-compliance level and not at the 'winning with MiFID' level, except for the largest continental banks."

The lack of a pan-European system to identify firms reporting trades and transactions is one of the technology issues to have emerged since implementation.

But Pickles acknowledged the market-leading firms are now using smart order routing technology to select the best trade venues to fulfil MiFID's best execution requirements.

In the near future algorithmic trading and smart order routing are predicted to be priorities along with efforts to cut tech costs due to the credit crunch.

MiFID has also led to strong take up of MiFID focused trading platforms, such as Chi-X, BOAT and Turquoise.

In terms of organisations not complying with MiFID, Pickles said: "As yet we have not seen direct action taken against investment firms, though it is generally expected that regulators will start to move against non-compliant investment firms during 2008."

Peter Redshaw, research director at analyst house Gartner, told silicon.com: "Many of the UK investment services firms, especially those that are smaller and on the buy-side, still seem to be in a 'wait and see' scenario."

He agreed that firms have complied as cheaply as possible and added they are now waiting to find out what IT budgets will be available, how trading alternatives are shaping up and how strong customer demand is for using these.

He added: "Despite their general travails from the sub-prime/credit crunch situation, the big investment services firms on the buy-side still appear to be quite bullish about MiFID and are not sitting on their laurels."

Of the technology issues, Redshaw said: "I don't see technology as being at the source of any of the issues. The main issues are much more business-related."

The Financial Services Authority (FSA) is now looking into how well firms are complying with MiFID, looking at issues such as disclosure of information and best execution, but when asked how MiFID implementation is going an FSA spokesman said: "It is too early to draw conclusions."

He added: "[The EU] have announced that they're taking action against the laggards. It's not for them to take action against firms for non-compliance - that's for national regulators."