Callum McCarthy has again expressed his concerns about the significant impact and burden the forthcoming Markets in Financial Instruments Directive (MiFID) will have on the financial sector.

Speaking at the British Bankers' Association 9th Annual Supervision Conference, the FSA Chairman said, "It is hard to exaggerate the pervasive effect which MiFID will exert over financial markets and financial institutions. It will reshape important elements of equity markets trading; it will introduce new client classifications, notably in relation to wholesale markets; it revises the rules for conflicts of interest; it introduces a new approach to best execution; it will limit outsourcing; and it sets out a new definition of ‘investment advice'. So no-one should be in doubt as to the importance of the changes which are due to be brought in on a present timetable which requires the FSA to have made all our rules by October 2006 – 12 months from now – and firms to implement these by April 2007."

McCarthy raised particular concerns over the timetable for MiFID, the lack of any cost-benefit analysis by the EU and doubts over the benefits the Directive will deliver for UK firms.

On the timetable, McCarthy highlighted the significant time pressure exerted by the lengthy but necessary discussions for the Lamfalussy Level 2 implementing measures. McCarthy said that the Level 2 provisions will be "absolutely crucial" for identifying answers to key questions on how MiFID should be implemented, but because of the protracted debate "it could well be April next year before the Level 2 measures are adopted in final form." McCarthy described the timetable pressures as "unwelcome" and "unsatisfactory", but said that the FSA would do all it could to relieve some of the pressure and make the timetable "more manageable." McCarthy's comments preceded a report on Reuters indicating that Britain has called for a 6 month extension to the MiFID deadline until 1 November 2007.

On the lack of a cost-benefit analysis by the EU for MiFID, the FSA Chairman was particularly scathing, describing it as "deeply unsatisfactory". Whilst McCarthy said he was encouraged that the Commission, under the leadership of Charlie McCreevy have committed to performing early impact analysis on future Directives, he pointed out that the FSA has a statutory obligation to produce a cost-benefit analysis of any new rules. This includes a requirement to perform analysis on rules introduced to implement Directives such as MiFID. To that end the FSA are continuing to work closely with industry stakeholders to establish as clearly as possible what the costs and benefits of MiFID are likely to be.

McCarthy expressed serious doubt that benefits would outweigh the costs of implementing MiFID. "From our preliminary discussions with firms, the initial implementation costs in the UK could be significant. We do not underestimate the deadweight cost of revamping existing, or introducing new, systems, procedures and business or trading models, particularly given the understandable desire of firms to minimise their legal and compliance risk. Even in those areas where the substantive requirements prevailing in the UK are not hugely changed by MiFID, the changes to the detailed form of the standards can be costly to deliver."

The full text of Callum McCarthy's speech, "Translating Europe into the UK" including his comments on MiFID is available on the FSA website.