Wake up !

I have already quoted the FSA MiFID Permissions and Notifications guide and how the FSA has clearly changed its message (the paper is full of "If you want this to be effective by November 1st you have to ... by...") several times. Last Friday I was talking to quite a number of bankers in London and around Europe. Some were cold calls for my teleseminars (and therefore their answers could be biased towards getting rid of me), others were arranged conversations for a book I am writing on cross jurisdiction banking in Europe post MiFID and three were conversations with people who had called me. At the end of the day I started thinking that maybe I was on another calendar, if not on another planet.

Too many people from smaller institutions have not started yet! They face some major risks:

1) The client categories do not map 1:1. Retail will stay Retail, but Intermediate may map to Retail or Professional depending on whether the corporate client meets the new criteria to be eligible either to be a Professional Client or to be upgraded to Professional Client. If a company that currently has a permission only for Intermediate (which will be mapped by the FSA to Professional), they need to submit a Variation of Permission Application by August 1st. The FSA quite clearly states that those who need to apply for a permission for Retail Clients for the first time need to have clear evidence of process and procedures being put in place to deal with clients that need more protection. If they only deal with intermediate clients they are unlikely to have those process and procedures. So what is going to happen on November 1st, if they are do not have completed client classification, process and procedures by August 1st ? Well, it depends on the magnanimity of the FSA....

2) They have clients based in other jurisdictions. MiFID has two passporting regimes: physical presence (branch passport) and cross border services (service passports). This means that a firm with clients based in another jurisdiction within the MiFID area should apply at least for a service passport. Existing passport status will be mapped post November 1st but there may be a need to revise it depending on the financial instruments and the services provided. The sticky point here is for firms that operate with agents. Introducer will not be affected but tied agents will be like branches and therefore will require a full branch passport (maximum processing time is five months, so if you are in that situation... better send your agent on holiday between November 1st and the time you have sorted all the paperwork!)

3) They are outside MiFID. Well... MiFID client classification criteria are now part of the new COB. You just have some more time, i.e. the transitional regime will last till July 1st 2008 but if you need to make a VOP (Variation of permission application) you have till January 1st, 2008 to do that. In other words, you have about five to six months to re-classify your clients and see what happens (this is especially important to financial institutions that do commercial loans, trade finance, etc. and have a permission for intermediate clients only)

The second group that shocked me is... non EEA banks. At least a dozen executive I talked to told me that MiFID does not concern them, because they are not a European Bank (some of these banks have large investment banking operations based in London and others have branches all over the MiFID area). Well... first of all this is worse than hiding their head in the sand. If they are based in London, with an FSA supervision...MiFID is the law of the land in the UK ! There are no indications that November 1st deadline will be postponed or otherwise made ‘more flexible' than what it is right now.

Third group... bankers from some EU countries. An Italian banker (Consob has committed to transpose by the end of June and most Italians think it will happen by September) - the head of Legal Services of a major group who called me asked me "Why he should know about MiFID"; a smaller German bank has not started on anything because MiFID "it will not happen"; a Luxembourg based buy side institutions is not doing anything because "very few countries have transposed yet". All of this was supplemented by a conversation with PJ Di Giammarino of JWG-IT where he added a few stories of his own to my list.

In Greek mythology, Cassandra did not end up very well in spite of her ability to predict the future. I am no mystic Meg or Cassandra, but I think we shall see a rush of transposition by the end of September. If the FSA is any indication of the attitude of regulators in Europe there will come a point at their discretion where their attitude will change and they will issue their own guide that says what you need to do by when if you want to be operational by November 1st. So, who will wake up in a cold sweat on November 2nd? Recently NASD fined HSBC $250,000 for breach of best execution is that a harbinger of things to come in Europe for next winter? Will European financial services have ‘A Very Cold Winter' this year? And what will happen to commodity traders (Oil Companies, Energy Traders, etc.)?

Well, my Crystal Ball is getting a bit foggy now but I definitely think it is time to wake up!