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Hector Sants |
Last Friday, the FSA, the UK regulator, announced its findings on the costs and the benefits associated with MiFID, the European Union’s Markets in Financial Instruments Directive. The 107 page report, The Overall Impact of MiFID, much of it detailed appendices, identifies approximately £200M a year in direct benefits to firms with a potential of a further £240M in indirect benefits to the economy, against estimated one-off costs to the industry of between $877M and £1.17 billion. These numbers are aggregates for the industry.
The FSA recognises the difficulty in putting a number on benefits and Hector Sants, FSA Managing Director Wholesale and Institutional Markets, said: "It is in the nature of regulation that costs are relatively easier to define and quantify for firms while benefits can be harder to pin down. As we have already foreshadowed, it is clear that implementation of MiFID represents a substantial cost to industry particularly in the upfront years, but it does create the potential for revenue opportunities over the longer term. We would encourage firms to focus on these opportunities."
The cost estimates were derived from surveying firms. The largest MiFID-related costs were in the areas of appropriateness of services, changes to client categorisation, best execution requirements, and systems changes. However, there were large variations in the total spend per firm with a median cost for small firms of only just over £10K against a quarter of a million for medium sized firms rising to over £7M for large firms. Ongoing costs were not surveyed but were estimated at 10% of one-off costs for the purpose of deriving the overall cost to the industry.
As to be expected, much of the industry reaction has focussed on the costs rather than the benefits, and it is also true that much of the benefits will be with the firms that are spending large amounts on taking strategic benefit from MiFID. An example of this is the seven banks who have joined to create Project Turquoise, reported earlier this month (see "Markets – MiFID starts driving change"). However the costs at the lower end of the scale are not extravagant and, as frequently commented in these articles, much of MiFID is standard good practice. How much MiFID-quoted spend is concealing projects which would have had to be done anyway? And surely a single European market in investment services is worth the price?
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