The UK’s financial regulator, the Financial Services Authority, has admitted that there has been no costs-benefit analysis of the impact of ...

The UK’s financial regulator, the Financial Services Authority, has admitted that there has been no costs-benefit analysis of the impact of the Markets in Financial Instruments Directive. In a speech to British Bankers' Association Annual Supervision Conference, FSA chairman Callum McCarthy said that is was “deeply unsatisfactory” that the regulator currently has no idea whether the directive will force costs upon industry that outweigh any potential benefits. The FSA has a statutory responsibility to carry out cost-benefit analysis of any new regulations it proposes. According to McCarthy, the lack of a cost-benefit analysis springs from the tight timetable for implementing MiFID: the directive is supposed to go live by April 2007, with the FSA having put in place all its rules by October 2006. The process for driving through MiFID has seen European Union member states adopting the directive before details of how it will actually be written and/or implemented have been agreed. The FSA is planning to publish a “prospectus” outlining the likely effects of MiFID on the financial services industry which it hopes will go some way to mitigating these considerable time pressures. It is to be drawn up with the help of industry associations, highlighting costs and systems challenges and is expected later this month. ”It is hard to exaggerate the pervasive effect which Mifid will exert over financial markets and financial institutions,” said Mr McCarthy to the conference. ”It will reshape important elements of equity markets trading, it will introduce new client classifications, notably in relation to wholesale markets, it revises the rules for conflicts of interest, it introduces a new approach to best execution, it will limit outsourcing, and it sets out a new definition of ‘investment advice’.”