Like most legislation that comes out of Brussels, Mifid is over long, needlessly complicated, infuriatingly vague and universally disliked. Well, EU directives do have a reputation to maintain. However, the concept is a good one; the Markets in Financial Instruments Directive is designed to create a level playing field throughout the EC for trading in financial instruments, in effect to break down barriers so that, in theory, an English company can offer services in France for example, while customers can be reassured of receiving best practise in any transaction. The legislation came into force in the UK (but not everywhere else) on 1 November.
Not only must companies dealing in financial instruments and advisory services provide introductory packs on complaint procedures, they must also be careful to ensure that products sold to clients match their ability and level of sophistication. Anyone trying to sell collateralised debt obligations to an old-aged pensioner in Barnsley will very quickly incur the wrath of the Financial Services Authority (FSA). Brokers must also be able to offer best execution, through the fastest trading system and at the best price.
Brokers will have to keep more records and will need to spend considerable sums on new technology, which for some smaller operators will mean that the cost of compliance will outweigh the benefits. So expect a wave of consolidation throughout Europe as smaller financial operators get together.
And don't think that this unwieldy mess can simply be pushed under the carpet. The UK's only residential property stock exchange business has already been forced to suspend its operations for non-compliance. While the Property Investment Market was previously unregulated, the online residential property shares market is now required to operate as a multilateral trading facility, which requires FSA approval. And trading will remain suspended until MTF criteria are met, which means that anyone owning shares in exchange properties cannot retrieve their money. Not the best of starts.
