The UK’s Financial Services Authority published a paper estimating that the cost of implementing the Markets in Financial Instruments Directive in the UK will be as much as £1 billion.

The paper indicates that, under certain assumptions, MiFID could generate some £200 million per year in quantifiable ongoing benefits, which will be attributable mainly to reductions in compliance and transaction costs. MiFID is a major part of the European Union’s Financial Services Action Plan. It makes significant changes to the European regulatory framework and is intended to take account of developments in financial services and markets in the past 10 years.

The quantified one-off cost of implementing MiFID could be between £870 million and £1 billion with ongoing costs of around an extra £100 million a year, it says. The FSA notes that these are aggregate figures, and that it is likely that the distribution of costs and benefits will vary among firms depending on exactly how MiFID affects their business.

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.

The FSA says that in the case of a wide-ranging directive like MiFID, it believes that it is useful to step back and analyse the costs and benefits as part of the bigger picture.

Hector Sants, FSA managing director Wholesale and Institutional Markets, said, “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.”