The ‘best execution’ clause of the European Union Markets in Financial Instruments Directive (MiFID) is causing high concern across the whole spectrum of financial services firms, according to a survey conducted by Complinet, the leading provider of solutions that dynamically deliver relevant compliance intelligence to industry professionals.
In a survey of 86 compliance, risk management and legal professionals working in the financial services industry, 50 respondents cited best execution as an area of high concern. The institutional investment sector of the market is particularly worried, with best execution emerging as far and away the highest concern for firms offering wholesale banking, securities trading, institutional fund management, derivatives trading and commodities trading services. Forty of the 50 respondents concerned about best execution are employed in these sectors.
Under the terms of the directive, which comes into force on 1st November this year, financial services providers that conduct transactions on their clients’ behalf must “take all reasonable steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order." For many firms that previously conducted transactions in-house, this means that they will also have to consider external trading venues if these appear to offer better results for the client.
“Part of the problem with best execution is that the wording in the directive is not very specific,” said Greg Kilminster, Group Managing Director, Complinet Regulatory Insight. “Our customers are telling us that the guidance provided by the EU and by the UK Financial Services Authority is not yet clear enough for them to be sure what their obligations are. With less than five months to go, they are still having to compare different interpretations and take a view on what best execution means in practice for their firm. This level of uncertainty is clearly causing concern.”
After best execution, the next largest implementation worry was client categorisation, with 38 respondents claiming this as an issue of high concern. Home versus host state reporting requirements, IT and systems integration, and record-keeping also
figured highly, with 33, 32 and 32 respondents respectively stating they were highly concerned about implementing these requirements. At the other end of the scale, passporting commodities, dispute resolution and issues surrounding systematic internalisers emerged as the least pressing of MiFID’s requirements, with only 10, 8 and 7 respondents respectively citing these as areas of high concern.
The survey was conducted by email by Complinet in April 2007. Complinet’s Regulatory Insight customers were presented with a list of 28 MiFID implementation requirements and asked to rate each one in terms of whether it was of high concern, moderate concern, little concern or no concern. Respondents also indicated their job role, their employer and the area of financial services business in which their employer is chiefly engaged.