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MiFID Life after November 2007? Ian Wigman BCS 25 th April 2007.

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Presentation on theme: "MiFID Life after November 2007? Ian Wigman BCS 25 th April 2007."— Presentation transcript:

1 MiFID Life after November 2007? Ian Wigman BCS 25 th April 2007

2 2 Word on the street … 20 billion Euro expected to be spent on 42 European regulations in Europe by 2010 on compliance of which MiFID constitutes 1-2 billion UK market is top of the maturity curve for current execution/planning against MiFID requirements by far – Holland and Luxembourg not far behind and Ireland somewhere in the middle – Spain, Greece and Italy way behind and USA sell-side also behind Most firms see MiFID as a 3 to 4 year evolutionary transitional process rather than a one-hit in Nov 2007 and are planning budgets/resources well into 2008/2009 to support implementation and training etc. In a recent poll 30% companies are now looking to drive benefit from MiFID Organising a company better and creating transparency (two of the four main MiFID requirements) are the lowest on the priority list whilst understanding customers & products and transacting the offering are highest – However all need to be equally addressed to meet Nov 2007 deadline

3 3 Key Challenges  Principles based regulation lays responsibility for compliance firmly at the feet of senior management  Establishing effective and demonstrably up to date, effective and well managed policies across the organisation  Enhancing senior management oversight, business continuity, outsourcing contracts, records keeping and control functions independence  Conflicts of interest and client inducement requirements now more onerous Systems & Controls  Minimum level of Client disclosures required  The greater detail and frequency of pre- and post-trade reporting  Record keeping will need to focus heavily around customers, products, transactions, transparency and governing the enterprise Assessing impact of home/host regulatory reporting requirements Reporting  Proving Best Execution – Scope of Best Execution across your transaction chain with more execution venues  Revised best execution measures – not just price determines what other parameters suit your business  Achieving greater transparency of the costs of execution and increase focus on client protection  Roles of market participants will evolve from day 1 e.g. emergence of trade data aggregators Best Execution and Trade Transparency  Client reclassification requirements, increased consumer protection and wider market mean closer focus required on client management and records (effect on client retention)  Improving client take on procedures, acquiring new clients from other companies streamlining their client base to comply with MIFID (Professional and Retail clients especially) The greatest challenges are posed by the end-to-end nature of changes to enterprise models Client Management  Understanding the effect of MiFID on your business  Exploiting new markets, products and services; reducing trading and compliance costs and complexity  Countering the threats of increased competition, cost of MiFID implementation and increased regulatory risk  Local regulators implement/interpret differently and at different speeds Strategic Impact Assessment  Managing complex programmes of this scale are difficult - multiple stakeholders and jurisdictions, working across functional/product silos and balancing business vs. compliance needs  There needs to be a demonstrative link between the MiFID imperatives from functional requirements to business and technical collaboration as well as to MiFID test triggers ultimately to the ‘to-be’ view of the business  Companies need to organise better around operational processes and procedures for implementation  Embedding compliance into core business across front, middle and back office to deliver sustainable compliance Programme Delivery As well as the basic challenges of cost effective compliance with MiFID, firms need to understand and address the strategic implications and long term ways of building sustainable practices

4 4 MiFID - a catalyst for strategic change? Solution Roadmap Governance and Compliance Records and Data management Reporting Provision of Service AcceptancePre-acceptance Execution & Order Handling Marketing Client Classification Information to Customers Client Agreement Suitability Appropriateness Best Execution Reporting to Clients Client Order Handling Reporting to regulators Conflicts of Interest Transparency New Services/ Products New Markets Tax Arbitrage Regulatory Arbitrage Client Retention Sustainable Compliance Client Onboarding Reduced Transaction Costs Streamlined Reporting Outsourcing/ Insourcing Joint Ventures Entity Rationalisation

5 5 Implications for IT MiFID should not be seen as an IT project - to do so is a recipe for disaster - it a business process problem Just six months now remain to perform the required systems transformations, which are likely to prove extremely costly. –Balancing commercial and regulatory demands –Large, bespoke architectures –Key skills shortages –Dependency on key vendors of data, applications and IT infrastructure –Many silos to cross (e.g., function, region, business) –Difficulty collaborating “many to many” –More processing power for spiky demand curves/increased volume –Historic data retrieval requires active data management –Significant new long term storage requirements –Complex structured and unstructured data management over time –More automation of front office activity –Customer management required to obtain single view Delivery of the massive IT project has become a top priority among the City’s CIOs, according to Patrick Ludden, MiFID programme project manager at Barclays Capital, which has created no less than 13 teams to assess the directive’s impact across the bank's various business lines. According to Anthony Kirby of the industry body MiFID Joint Working Group (JWG), Europe could sleepwalk “into a $20 billion bill collectively” if it does not grab the strategic advantage of MiFID and act quickly.

6 6 Guidance for Business in a Compliance Driven World Sustainable Compliance

7 7 Build for the future Integrated MiFID Business Change Program Roles & Responsibilities Policy Management Reporting Process Management Infrastructure and Apps MiFID Impact Assessment Tools Templates, Approach Post-MiFID Operating Model Integrated Workstreams Risks Data Info & Data Management Process Alignment Organisational Change Policies and Procedures Reporting Compliance

8 8 Build for Sustainable Compliance Identifies and prioritises the business drivers; stabilises and then establishes a strategy to: –Establish sustainable compliance standards & deliver improved compliance –Reduce the cost of compliance and reporting –Reduce the headcount needed to sustain compliance –Reduce the cost of technology to meet existing and new regulatory challenge –Reduce the duplication of compliance effort –Reduce cost of compliance associated risk and paper –Reduce the likelihood of Regulatory intervention through consistent & accurate reporting –Provide a sound basis for agile business change Sustainable Compliance Business Opportunity Increased Shareholder Value

9 9 Use tools – here’s one - MiFID Impact Assessment Process Model Effected Trade Processes Model Client’s Business & Processes Model MiFID Implementation Options & Plans Processes, guidance notes, references, checklists, templates, background reading A model of basic trade processes + MiFID conditions and impacts Firm’s MiFID-level model of processes - impacts, efforts, IT & outsourcing. Compliance recommendations, strategic options, consolidation possibilities, plans and budgets Allows for “slice and dice” analysis of MiFID impacts. Creates a repository of information for use by MiFID implementation. Allows a modern, easy-to-use process documentation tool. Provides ongoing MiFID support and a community for the exchange of information. Reduces elapsed time for the impact assessment – 20-30%. Improves productivity by 15-25%. Brings down the cost of implementation

10 10 Moving forward Implementation date of 1 Nov 07 will not change Prioritise and demonstrate a workable plan that will satisfy regulators Complete urgent high risk projects around client classification, policy management and systems and controls MiFID implementation times are already being squeezed Consider Principles based regulation on your current compliance activities Identify longer term remediation and exploitation projects Look for sustainability in approach

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