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MiFID Overview BCS 25 th April 2005 Simon Barker Head of Regulatory Affairs BNP Paribas London branch
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Disclaimer
Any views are personal to the speaker and are not those of BNP Paribas
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Summary
Background to MiFID
Impact Assessments
Project teams
Key issues
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Background
The Markets in Financial Instruments Directive (MiFID) introduces a consolidated regulatory regime across the EU for financial instruments
MiFID impacts all areas of financial services businesses and will require significant work to implement
MiFID will create significant operational impact but also strategic opportunities and threats
MiFID must be implemented by 1 st November 2007
Level 1 passed in April 2004
Level 2 passed in August 2006
Member States had to transpose MiFID by 31 January 2007…….
Level 3 currently underway 4
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Background
MiFID is a business issue:
it is not just a Compliance or IT problem
Issues such as best execution go to the heart of how the business operates:
solutions must be business led and not Compliance or IT led
Successful implementation depends on senior management support and commitment:
senior management must assume responsibility for implementation and establish effective governance structure to deliver effective implementation
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Impact Assessment
Comprehensive impact assessment must be undertaken:
identify gaps between current state and MiFID requirements completed on a front-to-back basis for each business area addressing impact on marketing, sales, trading and back office activities
Assessment needs to include:
Business processes Systems impacts Documentation requirements, including client documentation and internal policies and procedures Training and education
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Mobilise Project teams
Participation is required from all areas of the firm, including:
Business Management IT Operations Legal Compliance Risk Management Internal Audit HR
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Key impacts of MiFID
Client classification:
Clients to be classified as “Retail”, “Professional” or “Eligible Counterparty”. The level of protection a client receives depends on their classification.
Impacts
Re-classify clients (change existing flags)
May need to capture new information on clients
May need to feed client classifications to downstream systems
Best Execution:
Firms must obtain the ‘best possible result’ when executing client orders (with limited exclusions). Applies to all investments. Firms are required to put in place an execution policy and demonstrate compliance with the policy.
Impacts
Systems to comply with best execution policies
Capture and retain information necessary to demonstrate compliance with policies
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Key impacts of MiFID
Pre-trade Transparency
Applies to cash equities admitted to trading on a regulated market Systematic Internalisers to publish a firm quote in liquid shares
Applies to orders up to standard market size
Post-trade Transparency
Applies to cash equities admitted to trading on a regulated market Firms must make public volume and price of transactions at the time they were concluded As close to real-time as possible Reasonable commercial basis Easily accessible to other market participants
New ventures
Project Turquoise
Project BOAT
Equiduct 9
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Key impacts of MiFID
Suitability:
New requirements to assess suitability or appropriateness of products for clients in certain cases. KYC information will need to capture relevant information
Impacts
May need to capture additional information on clients
May need to feed information to downstream systems to support advice/trading decisions
Transaction reporting:
Shifts emphasis to report to home/host state competent authority of the firm and not the regulated market and extends obligation to ANY product traded on a regulated market (includes off-exchange transactions)
Impacts
Change to content of reports
Unique client identifiers
Change to recipient of reports
Identify securities to be reported
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Key Impacts of MiFID
Conflicts of Interest:
Prescriptive requirements to identify, manage and disclose conflicts of interest
Impacts
New conflicts management systems
Consider whether additional system access changes required
Client information:
More prescriptive requirements for information to be delivered to clients (best execution policy, conflicts policy)
Impacts
Web content
Recording changes to documents on web
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Key Impacts of MiFID
Outsourcing:
outsourcing of ‘critical’ or ‘important’ functions must not significantly impair firm’s internal controls or weaken ability to monitor compliance. Includes intra-group arrangements
Impacts
Outsourcing of IT functions may need to comply with new requirements
Record Keeping:
Prescriptive requirements to keep records for 5 years to demonstrate compliance
Impacts
Consider any systems that do not support a 5 year retention period
Commodity derivatives:
regulated under MiFID for the first time on a pan-European basis
Impacts
Consider whether commodities systems support requirements described above
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Conclusions
Key changes still to be settled
Business opportunities ?
FSA move to more principles based regulation
www.mifidpodcast.com
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