European Market in Financial Instruments Directive (MiFID)

Creating a Single European Market in financial services is a key aim of the EU. The mechanism to achieve this aim is MiFID, the EU’s Market in Financial Instruments Directive. MiFID applies to almost every financial institution apart from those involved solely with insurance and those solely involved with lending money and taking deposits.

November 2007 is the deadline set down for implementation of the directive. However, conventional wisdom states that the majority of companies are doing just enough to ensure they meet the 1st November target. The implementation repercussions of the directive, post 1st November 2007 will be significant. The key change will be the move from MiFID being solely a compliance initiative to becoming a major catalyst for business change and operational review.

As organisations take stock of their situation post MiFID implementation, the continuous nature of this compliance project will become apparent. The impact of MiFID will be felt in terms of people, systems and ongoing controls.

Certain aspects of the directive will become clear over time certainly, particularly those that relate to Transaction Reporting and Best Execution Policy. The key to the latter being, whether staff understand the policy and, is the policy being adhered to. Obviously an intelligent policy solution like MetaCompliance would be of great help here.

Organisations have spent considerate amounts of money educating staff in new processes such as Client Onboarding and Client Management. Millions of letters have been sent to clients to classify and clarify client interaction. Again it is clear that through automation, staff can be surveyed to ascertain levels of awareness and compliance and process communication programmes can be automated. This can also apply to clients as the limitations of letters as a form of interaction have now been highlighted. Going forward, MetaCompliance can assist organisations in maintaining compliance and by reducing the operational cost.

Whilst the downstream repercussions of the directive have not yet manifested themselves, it is generally accepted that it will be a dynamic and ever changing environment due to market changes and the fact that this regulation is based on principles as opposed to rules and tick boxes. Major savings in time and money can be obtained by automating some of the ongoing and mundane operational aspects of this compliance. In particular, there are a number of requirements that require structured communications between the organisations and staff and the organization and clients. These areas include:

• Conflict of interest
• Policy communication and management
• Risk assessments and internal audits
• Reviews and surveys

The prospect of satisfying these needs through paper or email is daunting. Only through the deployment of an intelligent policy management system like MetaCompliance can financial services organisations mitigate the risk of a compliance failure.

Post November 2007, as MiFID begins to deliver standard levels of protection for clients throughout Europe; financial services organisations will adopt a more business orientated approach to this compliance initiative. Through deploying MetaCompliance they can drive out cost and de-risk their ongoing MiFID governance programme.