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FSA Counts Cost Of MiFID

by Robin Pilgrim,, London

27 November 2006

The UK's Financial Services Authority on Friday published a paper setting out its assessment of the overall costs and benefits for the financial services industry of implementing the Markets in Financial Instruments Directive (MiFID).

The paper indicated that, under certain assumptions, MiFID could generate some GBP200 million per year in quantifiable ongoing benefits, which will be attributable mainly to reductions in compliance and transaction costs.

However, the quantified one-off cost of implementing MiFID could be between GBP870 million and GBP1 billion, with ongoing costs of around an extra GBP100 million a year.

Hector Sants, FSA Managing Director Wholesale and Institutional Markets, observed that:

"It is in the nature of regulation that costs are relatively easier to define and quantify for firms while benefits can be harder to pin down. As we have already foreshadowed, it is clear that implementation of MiFID represents a substantial cost to industry particularly in the upfront years, but it does create the potential for revenue opportunities over the longer term. We would encourage firms to focus on these opportunities."

The cost estimates are based on a survey of firms in which they were asked to set out their actual and/or expected budget for MiFID implementation. The results from this survey were then aggregated using estimates of the total number of firms directly affected by MiFID.

The benefits were calculated against a number of scenarios relating to the impact of MiFID on business practices and dynamics in the UK’s financial services industry and the extent to which MiFID contributes to the aim of the Financial Services Action Plan in helping to foster a single integrated market in EU financial services.

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