Costs of implementing MiFID II are likely to be substantial according to UK regulator’s most recent consultation paper, something which firms should bear in mind as they plan their regulatory projects for the year ahead, according to Aite Group.
Virginie O’Shea, senior analyst at Aite, said it will help firms form an action plan if information on potential costs is made widely available.
“This acknowledgement is beneficial to the industry as it means that they can plan a budget.
“Regulatory admissions that these changes are going to be costly will aid the operations and IT departments especially as they will get money to invest.”
According to the FCA paper, trading platforms and market participants will incur ‘significant’ costs in order to implement new systems under MiFID regulations. Market participants will also incur ‘significant’ extra costs in order to access the new electronic trading platforms.
O’Shea also indicated that certain participants would particularly feel the cost of implementing the new regulation.
“There will be a tremendous amount of cost for the market data providers as well as the Approved Reporting Mechanism (ARM). They will have to spend money to adapt their systems.
“This aspect of MiFID is something that has been vaguely acknowledged before but this is official recognition that the costs will be substantial.”
Under MiFID II’s authorisation regime, existing UK equivalents of Approved Publication Arrangements (APA) and ARM’s are required to upgrade their systems and control procedures.
The FCA has also indicated that due to the wider scope of APA’s and ARM’s, investment firms using these will also incur higher costs.
A lack of clarity on the rules has made it difficult for firms to plan out their budgets for implementing MiFID II. Official recognition that costs will be high should enable front and back-office managers to receive the budgets they need to fund their implementation projects.