15 March 2006

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Business Today

Greater risk of inconsistent implementation of financial instruments directive

Despite the European Commission’s push for as much harmonisation as possible, there is now a much greater risk of inconsistent implementation and differences of detail across Europe in the critical provisions concerning how firms will advise and deal with clients under the Markets in Financial Instruments Directive (“MiFID”), says KPMG, the professional services firm. This follows the publication by the European Commission of the Level 2 implementation of MiFID on 6 February 2006.
Jonathan Jesty, Regulatory Partner, KPMG London, who was one of the main speakers at the financial services conference organised by KPMG Malta last year explains:
“In this formal draft, the balance between the implementation of MiFID by Directive and Regulation has veered back towards Directive, with substantially all the requirements relating to dealing with and advising clients, as well as how firms are organised, dealt with by Directive rather than Regulation. This follows robust lobbying by certain countries and some debate about what was legally possible for the Commission to put into Regulation format.
“In turn, this increases the weight of expectation on ‘level 3’ (international co-operation and consistent implementation) and there remains much scepticism that there will be common implementation across the European Economic Area – in substance, timing and enforcement.”
The placing of much of the requirements in a Directive rather than Regulations at first sight gives the regulators such as the MFSA more flexibility about how they implement MiFID.
Jonathan Jesty comments: “The Directive has a provision prohibiting ‘gold-plating’ that is incremental regulatory requirements imposed by individual member states, unless very specific criteria are met. This will apply when either the requirements are of particular importance to the market structure in that particular country; or it is necessary to address new issues which emerge after the Directive is applied. A major issue will be the extent to which the regulators will interpret the significant body of their existing rules which go beyond the Level 2 requirements”.
Juanita Bencini, who heads Regulatory and Compliance Advisory Services at KPMG Malta, concludes: “The European Commission is saying, that firms should prepare for MiFID now and that the better prepared will be the winners. We quite agree – firms can’t afford to wait any longer. Business management across Europe now needs to engage. However, businesses should not panic and throw money at it but put their response onto a proper business footing. They need to analyse the potential strategic impact on them, the critical operational consequences and plan a proportionate response.”

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