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FSA sets out costs and benefits of MIFID - One Billion Pounds

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FSA sets out costs and benefits of MIFID - One Billion Pounds

The Financial Services Authority today (24 November 2006) 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) in the UK.

The overall impact of MiFID attempts to quantify, where possible, the benefits of MiFID in the UK, and sets these alongside the costs of implementation. 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.

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. These are aggregate figures: it is likely that the distribution of costs and benefits will vary among firms depending on exactly how MiFID affects their business.

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."

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 paper is a separate exercise from the detailed cost-benefit analysis undertaken in relation to particular policy decisions and published alongside the FSA's MiFID-related consultation papers. In the case of a wide-ranging directive like MiFID, the FSA believes it is useful to step back and analyse the costs and benefits as part of the bigger picture.

However, a summary table of the detailed costs from the FSA's MiFID-related consultations is included as an Annex, which shows that some of the largest MiFID-related compliance costs are one-off costs arising from the introduction of the appropriateness test for non-advised sales, changes to client categorisation and best execution requirements, and systems changes required by new market transparency provisions.


  1. The overall impact of MiFID is available on the FSA website. It contains at Annex 1 the individual cost estimates that were included in the three relevant MiFID Consultation Papers that the FSA published in 2006: CP06/9 'Organisational systems and controls: a common platform for firms', CP06/14 'Implementing MiFID for firms and markets', CP06/19 'Reforming conduct of business regulation' (CP06/20 Financial promotion and other communications is also relevant to MiFID implementation but does not contain quantified cost estimates).

  2. The analysis in The overall impact of MiFID is based on three main pieces of work:

    • A description, based on the FSA's database of firms and their permissions, of the likely population of firms directly affected by MiFID, and some assumptions about how that population is distributed in terms of firm size;

    • A report prepared by consultants Europe Economics seeking to quantify the benefits of MiFID - this report can be found at Annex 2 of the paper; and

    • A survey of a sample of firms potentially directly affected by MiFID, seeking estimates of the overall cost impact of MiFID for them.

  3. MiFID is a major part of the EU Financial Services Action Plan. It makes significant changes to the EU regulatory framework for investment and securities business. It replaces the Investments Services Directive implemented in 1995 and is intended to take account of developments in financial services and markets since then.

  4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

  5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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