Firms criticise regulators for lack of guidance

As the November deadline for the Markets in Financial Instruments Directive (MiFID) looms ever closer, sell-side firms are praying for a miracle: that national regulators will provide them with more guidance and support.

I remember some weeks back citing PJ DiGiammarino, CEO of the MiFID think tank, JWG-IT, who told firms at one of its many workshops that as MiFID is a "principles-based" regulation, firms should not rely on the regulators to provide them with much guidance when it comes to implementing MiFID.

Yet, MiFID Readiness findings from a year-long survey of 300 buy and sell-side firms conducted by SunGard and TradeTech, indicate that more than half of respondents felt national regulators were either “bad” (32%) or “very bad” (19%) in helping them prepare for MiFID.

In the UK, the Financial Services Authority (FSA) prides itself on its principles-based approach to regulation, and has tried to move away from a prescriptive approach, which has caused consternation in other markets, namely the US, where regulators were lambasted for taking a too prescriptive approach to regulations such as Sarbanes-Oxley.

But according to the survey findings, only 54% of firms believed that a principles-based approach was the best approach when it comes to MiFID, with the remaining respondents stating that it “makes it difficult to understand exactly what requirements the FSA desires, adding to the compliance task”.

Yet, despite their dissatisfaction with the lack of guidance from regulators, it does not appear to have prevented 53% of firms from declaring their preparations for MiFID to be “ahead” or “right-on-track”, compared with only 34% of firms surveyed in September 2006.

The survey findings appear to highlight some anomalies in the market. Firms would be quick to criticize regulators for taking a too prescriptive approach to regulations like MiFID, yet on the other hand they seem to desire some hand-holding. It appears that the regulators are damned if they do and damned if they don't and those firms that require hand holding or guidance are unlikely to recognise the opportunities MiFID presents to launch new initiatives and "strategic reforms".

It is worth noting that if all sell-side firms required guidance on MiFID from the regulators, then Project Turquoise and Boat may never have existed.