The MiFID Permissions and Notifications guide recently published by the FSA gives a few indications as to how the FSA intends to manage the transition. So, what could be the potential issues behind a set of very tight deadlines ?
Client categories and mapping of permission. The FSA will map permission in a very clear cut basis, i.e. intermediate = professional, etc. Unfortunately the criteria to place clients in one category or another under MiFID do not exactly match the criteria currently being used under the ISD and BCD rules. Corporate clients usually were classified as intermediate, MiFID sets clear guidelines to decide when a corporate client is a professional client and when it is a retail client. So what happens if some of your client have ‘gone retail' and you cannot justify moving them to professional status? You should submit a VOP (Variation of Permission) application by August 1st, unfortunately the paper also says "If you apply for permission to deal with clients requiring higher level of protection, for example where a firm is dealing with retail clients for the first time, you will need to demonstrate to us that you have the necessary systems and controls in place to do so". Therefore your deadline of August 1st is not just for an application, but it is also for the "necessary systems and controls" that must be in place, or at least on their way to be "in place" by November 1st. The same chapter clearly states that even if you do not do MiFID business you will have to change your classification criteria eventually, with the deadline being July 1st, 2008 and the deadline for VOP applications being January 1st, 2007.
Passporting. If you do not do MiFID business and wish to ‘opt-in' to benefit from the advantage of passporting rules under MiFID or decide to opt-out of the exemptions you have an interesting situation if you want to have your non-UK operations up and running by November 1st. You should send your application immediately (MiFID sets out a maximum time period of five month for both home and host regulator to process a branch passporting notification). If you are already passported and you do not wish to extend your passporting to other financial instrument beyond the FSA mapping, you are fine. Otherwise act now. If you plan to work with tied agent outside the UK, a tied agent is considered a branch and will require passporting (and therefore following the five months maximum processing period, act now). If you are one of the "new" investment business (Commodity broker, spread betting, etc.) and need to passport - even if it is a passport for services, not a passport to open a branch - you should start working at it.
This two examples give you an overall idea of the change of attitude. The ‘transition guidelines' have arrived and it is now time to stop thinking and start talking. Each possible variation of permission application will require policies and procedures to be in place or at least will imply strategic and operational decisions which deserve to be taken with the relevant care and attention.
If the FSA is any indication of what will happen in the rest of Europe we shall probably see a ‘rush to transpose' over the summer and by October 1st a majority of EU countries will be "MiFID compliant". Leaving financial institutions to scramble to meet the November 1st deadline. Since the first tier institutions started earlier, they will be ready (or on their way to be ready). All those that are still ‘talking' rather than acting may have interesting surprises on November 2nd. I sincerely hope I am wrong, but... you read it here first
2 comments:
Wind the clock back 8 years and there were the same fears being expressed about Y2K. In the event nothing much more serious happened to the countries like Italy that had completely ignored it, than the countries like the US that had spent billions. It was a non-event.
Deadlines that a large number of people/orgs don't take seriously have a tendancy to slip back several months or years until they do.
There are several comments about this in the MiFID podcast www.mifidpodcast.com which I've found to be a very useful review of the status. It would be good if you could cover this in your blog.
I disagree with the parallel between MiFID and Y2K. Regulators hold the power of enforcement, sanctions, etc. They sent a mixed message so far (some of them run the risk of being sanctioned themselves !) and it will be interesting to see what they decide to sanction and whom they decide to target. Also nit will be interesting to see what large clients will do the first time the market turns and they start loosing money.(challenge best execution, etc.)
This, and not the calendar,
Post a Comment