Mifid plans may put pressure on IT
Price benchmarking plans rejected by Futures and Options Association
Financial services firms face substantial data management challenges if Financial Services Authority (FSA) price benchmarking proposals relating to the forthcoming Markets in Financial Instruments Directive (Mifid) legislation are implemented, experts have warned.
Mifid is a European directive which aims to create a single market for financial services across Europe, lowering the costs for banks wanting to do business in other countries.
A report conducted by consultant KPMG on behalf of the Futures and Options Association (FOA) says the impact of strict price benchmarking would put significant pressure on existing IT processes and create significant costs.
Price benchmarking has been proposed by the FSA as the solution to Mifid’s requirement for best execution – an edict requiring firms to obtain the best possible deal for their clients in terms of price, cost, speed and likelihood of execution and settlement.
The FOA has rejected FSA proposals and is urging the regulator to allow firms discretion in determining how to measure best execution in dealer markets.
Rob Nieves, KPMG director and co-author of the report, says there is a technical impact in implementing the benchmarking approach.
‘Capturing third party market information and the debate around how frequently this should be done will impact IT,’ said Nieves.
‘Whether it’s captured real-time, sporadically during the day or once a day will depend on how prescriptive the FSA will be about the requirements,’ said Nieves.
‘If we are successful in persuading the FSA not to be prescriptive about benchmarking it will reduce the amount of data that needs to be captured, stored and maintained,’ he said.
Nieves predicts compliance requirements will remain obscure for the next few months.
‘Firms needing to plan will either have to take a best guess or wait even if this will create some risk in relation to the Nov 1 2007 deadline,’ he said.
Anthony Belchambers, chief executive of the FOA and chairman of Mifid Connect, an alliance of industry bodies says if firms are to meet the Mifid deadline the FSA must allow them to concentrate resources on implementing the essential directives of the directive.
‘The debate about price benchmarking in dealer markets has been an unfortunate distraction to this core objective,’ said Belchambers.
‘No one-size fits all and that applies to benchmarking as well,’ he adds, ‘no single IT solution will fit the requirements either.’
Ash Saluja, partner in financial services firm Cameron McKenna says cost and uncertainty are the main issues for IT in relation to Mifid compliance.
‘To produce a price benchmark you have to assure accuracy in real time – it’s a lot of work which will lead to extra cost,’ said Saluja.
What do you think? Email [email protected]
Further reading: