It has been nine years in gestation and on Thursday it takes effect. But implementation day for Mifid – the markets in financial instruments directive – will not be a Big Bang event in the creation of the European Union’s single financial market so much as the start of a long roll-out.
One reason is that, at the last count, 10 of the EU’s 27 member states were still unprepared for Mifid despite having had an extra 18 months for governments to dot the ‘i’s and cross the ‘t’s of the new legislation and for companies to put the necessary investments in place.
But this should not detract from the significance of this day. Mifid is a substantial and potentially sweeping piece of EU law-making. Its objectives of creating efficient conditions for trading securities and other financial instruments, promoting competition and providing EU-wide standards for investor protection serve the laudable goal of fostering economic growth in Europe through the creation of deep, liquid and well-regulated financial markets of a continental scale. In those member states where transposition of Mifid is still under way, regulators have made transitional arrangements to ensure the majority of EU investment firms will be able to benefit from the law.
And benefit they should, notwithstanding Mifid’s appalling press during its progression from plan to law. It has at times appeared to be a bureaucratic nightmare. Mistakes have been made. It has always been easier to calculate the upfront costs of implementation and compliance than guesstimate the potential “second-round” benefits a single market should yield. The absence of a formal and thorough cost-benefit analysis by the Commission has played into the hands of Mifid’s critics.
Mifid makes more sense if it is viewed in a holistic manner: not in isolation, but as a “coping stone” rounding off the 42 measures of the EU’s ambitious financial services action plan. Some of Mifid’s provisions – for example, allowing investment firms to access clearing and settlement services in other member states – appear toothless. But this part of Mifid can now bite following last year’s separate Commission-brokered agreement on an industry code of conduct for clearing and settlement.
After so long in preparation, Mifid should not be a leap into the unknown. But financial services regulation has often tripped up on the law of unintended consequences. That and Mifid’s long roll-out are reasons to keep the new law under close review. The Commission must stand ready to propose improvements to Mifid if and when these prove necessary.