Banks and broker dealers will suffer from a competitive disadvantage in member states that are lagging behind on MiFID implementation and now face major court cases, says Karel Lannoo in an interview with EURACTIV. The researcher thinks that the new legislation is a ‘major step forward for greater investor confidence’.
Karel Lannoo is Chief Executive Officer at the Centre for European Policy Studies (CEPS) and an expert on banking, financial markets and financial market regulation.
What do you think is the main problem regarding MiFID implementation? We see that many countries running late in implementing this directive and also many of the market players are having problems applying the rules. What are the main reasons for this?
The main problem is that it is new. The kind of things MiFID regulates are new for many member states. The core concept of MiFID – ‘best execution’ – did not exist. It was broadly defined in different member states but there was not something like a ‘best execution’ and all the other related things, like knowing the customer rules or conflict of interest rules. These are new. That is the reason why it took a long time, too long in my opinion.
Who is to blame?
Basically, the member states are to blame. I find it a shame for certain member states because it is so short-sighted. Some are well on time. They have informed their banks and local communities very well. Other member states have not done anything until very recently.
You can only say that their banks and broker dealers will suffer a huge delay, a competitive disadvantage. Imagine yourself as a banker in such a country. How do you prepare yourself? I would not know. Of course, you can look at what other member states are doing, but that is no real guidance for how you have to do it within your jurisdiction.
The Commission has recently updated its questions & answers on MiFID. Do you think they have reacted too late in giving some extra information?
I partly have the impression that on the issue of MiFID implementation, the Commission has backed out, stayed aside, probably a bit too much. On the other side, once it is out of its hands it is up to the member states.
The Commission’s task is to make sure that it [MiFID] is implemented on time and warn the member states but the implementation itself is not the task of the Commission. It is the task of the member states. I would not blame the European Commission. They did the task between 2001 and 2003. Then it was up to the Parliament and the Council, and now it is up to the member states.
I have heard many anecdotes from people from certain member states saying that MiFID was never going to happen even after the legislation had been adopted. I cannot believe it.
What are the consequences and concrete dangers of implementing MiFID?
It is addressing increased competition between financial centres. Some member states will be very well prepared, some will be badly prepared. There are also legal problems – you do not know what you are up to if you provide cross-border services under MiFID. What legal certainty or uncertainty do you face?
The other problem is just whether national authorities are capable of coping and – in the next phase – supervising what the member states have effectively implemented. This raises a host of questions which, for me, are rather frightening.
So we will only know what the real consequences are when the deadline has passed and a new system has been put in place.
The litigation is another danger of MiFID, as the directive is so much more defined than any other previous directives at EU level on this subject. Probably, there will be people waiting to file claims with the courts because they have not been given best execution in certain member states. So we have to watch out for that.
But again, it is the fault of the member states. It is not the European Commission. For sure, it is overall a good piece of legislation for what the Commission has done. The intentions are extremely good, but what it brings we will see.
That means that member states could possibly face huge court cases for not properly implementing MiFID?
Possibly, or there may be court cases against certain banks which have not implemented best execution.
So we will probably see a lot of finger pointing?
As always when something is not working. For my side, the Commission is certainly not to blame.
Do you think that MiFID is an example of where the Lamfalussy policy process failed? How do you see the MiFID context with the Lamfalussy review coming up soon?
MiFID is the most typical Lamfalussy directive so far but also with the broadest number of possibilities to adapt it in the future following the Lamfalussy prodecure. What is still outstanding from my perspective is that levels three and four have not been sufficiently defined within Lamfalussy. We know that within level three the whole debate is about the power of the committees, like the Committee of European Securities Regulators (CESR), and on level four there is the question of enforcement.