The Financial Services Authority says the cost of implementing the Markets in Financial Instruments Directive (MiFID) in the UK could cost financial services firms up to £1bn, with ongoing costs on top.
While the FSA says MiFID could generate around £200m in quantifiable ongoing benefits, attributable mainly to reductions in compliance and transaction costs, its implementation could cost between £870m and £1bn.
There could also be extra ongoing costs of around £100m a year, said the FSA.
MiFID is a major part of the EU Financial Services Action Plan. It makes significant changes to the EU regulatory framework for investment and securities business.
MiFID replaces the Investments Services Directive implemented in 1995, and is intended to take account of developments in financial services and markets since then.
Among other costs, financial services firms will have to reconfigure their systems to satisfy the demands of the directive.
Hector Sants, FSA managing director for wholesale and institutional markets, said, “It is clear that implementation of MiFID represents a substantial cost to industry, particularly in the upfront years, but it does create the potential for revenue opportunities over the longer term. We would encourage firms to focus on these opportunities.”
The FSA cost estimates are based on a survey of firms in which they were asked to set out their actual and/or expected budget for MiFID implementation.
The benefits of MiFID were calculated against a number of scenarios relating to the impact of MiFID on business practices and dynamics in the UK’s financial services industry, and the extent to which MiFID contributes to the aim of the Financial Services Action Plan in helping to foster a single integrated market in EU financial services.
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