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Mifid review must remain focused on original objectives

Wednesday 12 May 2010 - by Mark Hart

 Association for Financial Markets in Europe managing director Mark Hart says regulators must resist the urge to use the Mifid review to achieve new objectives

When it came into force in 2007 the Markets in Financial Instruments Directive, Mifid, was one of the most significant and far reaching financial services directives of the decade.

There were few financial firms not affected by it in some way and, for some, the costs associated with implementation were significant.

Now, just three years after implementation, it is being reviewed. And while regulation will, inevitably, always need to adapt to changing markets and product innovation, such reviews tend to lead to further regulations rather than the abolition of ineffective ones, so the industry will be watching carefully to see how the European Commission and the Committee of European Securities Regulators carry out their work.

The starting point for any review must, of course, be the original objectives of the legislation. Paraphrased, these were to create a single efficient market in financial services across the EU with harmonised conduct of business requirements, increased transparency, increased competition and lower costs - all in the interests of encouraging and protecting investors and improving market integrity. In other words, Mifid aimed to create a level playing field for investors across Europe so that an investor in Athens has the same opportunities and protections as one in Aberdeen.

Have those aims been met? Well, up to a point. Certainly, Mifid has brought significant overall benefits to users of wholesale markets and consumers, and to larger firms operating internationally. It has made cross-border investment business in the EU easier and increased competition and innovation while reducing trading costs.


However, as noted above, those industry benefits have come at a price too high for some. For investment firms with a retail client base and minimal cross border involvement, the costs of adjusting to Mifid requirements have not generally been balanced by commercial benefits.

Such firms could be especially reluctant to be required to incur further cost at little or no benefit to their business. It is particularly important to guard against change for change’s sake - and even more so when one considers that this review is taking place in a financial sector that looks very different from that of 2007.


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