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.