IT directors in the financial services sector received a
wake-up call yesterday from the Financial Services Authority about
new regulations that are likely to have a greater impact on
business than Basel 2 or Sarbanes-Oxley.
The regulator issued a document setting out firms'
responsibilities in relation to the European Union's impending
Markets in Financial Instruments Directive (MiFID) and a timetable
for action in the months ahead.
A final version of the directive is due in December, and IT
heads of investment banks, who will be directly affected, face both
a logistical headache and a bill which analyst firm TowerGroup has
estimated could be £13m apiece.
IT directors elsewhere could find themselves struggling to hold
on to staff or get the contractors they need as investment banks
pour resources into complying with the regulations.
MiFID threatens to transform European financial markets in the
next two years with its radical agenda to create a true single
market and to cut the risks associated with trading by enforcing
best-execution principles and making traders publish all dealing
prices in real time.
It will dwarf the demands placed on IT by regulations such as
Sarbanes-Oxley and Basel 2, said Bob Fuller, head of IT strategy at
Dresdner Kleinwort Wasserstein and co-chair of the MiFID IT Joint
Working Group.
Coping with the demands of MiFID, he said, would require trading
banks to fundamentally change the nature of their core
operations.
Fuller said IT directors have little time to get to grips with
the issues. "If IT directors have not engaged by the end of the
first quarter next year, I believe their firms could be
significantly compromised, given the likely complexity of the
implementation process," he said.
MiFID contains 73 separate articles aimed at changing the
European investment landscape to create "the most dynamic and
competitive knowledge-based economy in the world" by 2010.
Its catalogue of requirements poses a huge challenge to banks.
However, Towergroup analyst Chris Skinner said only a handful of
banks were preparing for the arrival of MiFID by introducing
flexible, service oriented architectures and adopting open
messaging standards such as XML.
This approach would give organisations the maximum flexibility
in dealing with both future compliance legislation and business
opportunities, he said.