Investment managers find it hard to measure the true cost of MIFID

London - 12 December 2006

Few investment management firms have separate MiFID budgets, a recent forum run by Investit found. The FSA published a paper stating the total cost of MiFID could be as much as £1 billion, and the benefits could be £200 million each year. However, investment managers are able to absorb MiFID changes into existing 'business as usual' projects and use internal resources to run MiFID programmes. This makes it hard for both them and the FSA to calculate the true cost of MiFID for the investment management sector.

On 29 November, Investit ran a forum for current clients of its MiFID Toolkit, to discuss progress on their MiFID projects. There were 25 attendees representing nine investment management firms, one asset servicing company and the IMA. Eight out of the nine investment management firms attending did not have a separate MiFID budget; they are incorporating MiFID into existing business projects. A single pro! gramme manager is the only dedicated resource. So, investment managers are finding it complicated to estimate the true cost of MiFID.

Investit's MiFID clients named the MiFID projects that are generating the most amount of work as:
Client categorisation.
Transaction cost analysis.
Best execution. Investit is now writing best execution policies for a number of firms.

Investit is conducting its first MiFID programme across both the asset management and asset servicing businesses of Northern Trust – to our knowledge; this is the first company of this type to run an in-depth, integrated MiFID programme.

Investment operations outsource providers and fund administrators are also feeling some of MiFID's impacts. Outsourcing is one key area that directly impacts both the asset manager and the asset servicer. Outsource contracts and the exact service definition will hav! e to be reviewed to identify where MiFID issues arise and how they wil l be handled. And, while many of the services provided by asset-servicing firms are not directly within MiFID's scope, they do need to run MiFID programmes to ensure they identify which of their services, and therefore the legal entities delivering such services, do fall in scope. And many of their MiFID regulated clients will have raised expectations of the standards of service delivered to them by their administrator banks to ensure their compliance with MiFID.

Commenting on the MiFID Toolkit Forum, Investit's Clare Vincent-Silk said:
"Given the number of MiFID scare stories we've read, it's good news to hear that investment management companies are able to incorporate MiFID into existing 'business as usual' projects. It's apparent that MiFID projects are a lot less complicated than first feared."

Commenting on the MiFID Toolkit, Friedrich Burian, Head of Risk Management, Northern Trust, said:

"We consider MiFID to be the most important regulatory change in the last decade in Europe and we take its impact on our clients and our business very seriously. While the impact of MiFID on our business will vary from most investment firms, custody firms of similar size and scale will have like issues. We are absolutely committed to be MiFID compliant by November 2007 and are on target with our plans. We want to ensure that we continue to meet the highest possible standards across all our business activities for our clients and other stake holders. We were pleased to host the Investit conference and glad to contribute to a better understanding of the issues across the industry."

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