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By Steve Ranger, 28 November 2006 09:00

NEWS

The City will have to spend around £1bn getting ready for the next big piece of European financial services regulation. And despite a looming deadline many companies have yet to act.

The Financial Services Authority (FSA) has calculated that the Markets in Financial Instruments Directive - MiFID - will create one-off implementation costs of between £870m and £1bn, with ongoing costs of £100m per year after that.

MiFID is a major part of the European Union's Financial Services Action Plan, making significant changes to the European regulatory framework.

And while the regulator said MiFID could generate some £200m per year in "quantifiable ongoing benefits", mainly the result of reductions in compliance and transaction costs, it said costs and benefits will vary from company to company depending on exactly how MiFID affects their business.

Cheat Sheet

Learn all the dirty details about MiFID in our Cheat Sheet.

In its research, the FSA also discovered more than half of the companies that will be affected by MiFID haven't budgeted for the work yet, even though the regulation comes into force in less than a year. Compliance and IT costs are likely to form the bulk of the spending.

By 31 January 2007 - the transposition date - changes to national law to introduce MiFID have to be in place. MiFID itself comes into effect on 1 November 2007. But it is so far unclear what will happen to companies that are not compliant on that date.

Chris Hibben, head of MiFID implementation at the FSA, said: "We fully intend to make 31 January - we see no benefit in the UK being late."

Even if the FSA is confident, it seems not all financial services companies are. A poll commissioned by SunGard and TradeTech found 65 per cent of companies either have no overall plan or are yet to fully identify MiFID-related budgets - but, despite that, 80 per cent of respondents felt their company is on track with MiFID preparations.

For many businesses there seems to be an attitude of "wait and see" as MiFID's implications become clearer over time, said Richard Thornton of SunGard Consulting Services.

Spending by companies on MiFID compliance also varies - half are spending less than €1m, although 18 per cent have budgeted between €10m and €40m, the poll found.

Getting legacy systems to comply with MiFID is seen as the biggest technology headache, according to another piece of research conducted by EA Consulting, followed by a lack of awareness of the issue at board level. The November 2007 deadline and the need for data storage and retention are also listed as problems for technology chiefs.

Jon Murphy, managing director of EA Consulting Services, told silicon.com while the technology job itself doesn't seem to be that taxing, "time is running out" and many companies haven't put budget aside for it yet.

And he warned although the deadline for compliance is November next year, developing, building and testing new systems will have to be done long before that - preferably early enough to allow a month or two spare for unexpected problems.

He added: "The companies that haven't started need to get their acts together."