Lack of IT investment to delay Mifid benefits

Deutsche bank invested in IT early to cope with MiFID

The benefits of incoming European financial services regulations will not be felt for up to 18 months because some firms are not making the requisite IT investments, say experts.

The Markets in Financial Instruments Directive (Mifid) – which creates a single market for investment services – could save UK firms £200m a year when it comes into force on 1 November, according to estimates from the Financial Services Authority.

But firms taking a minimal compliance approach will undermine the efficiency Mifid is designed to establish, said Alan Jenkins, Europe lead at consultancy BearingPoint.

“Primarily it is a legal compliance and business problem, and a lot of companies are taking a compliance-only response,” said Jenkins. “But if more firms had invested in technology you would have seen improvements within six to nine months rather than a year-and-a-half.”

The Mifid rule that financial service providers transparently scan markets for the best share prices will quadruple pre-trade data requirements. But smart order routing systems to handle the extra workload have only been introduced by a minority of affected firms.

Part of the blame lies with individual member states’ regulators. Setting tight deadlines for Mifid has encouraged a bare-minimum approach.

Estimates suggest implementation of Mifid will cost the UK financial services industry up to £1bn. And without the IT component, firms will lose out.

“You have to automise your processes and get your act together,” said Deutsche Bank head of advisory IT Stefan Sutter. “If you do not your cost base will increase hugely.”