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Uncertainty around EU directive could be costly for financial sector

MAGNUS KRUSBERG | REALTID | 4 OCTOBER 2016

Read the full article in Swedish

PA’s Magnus Krusberg, financial services expert, explains how European financial institutions can make sure they’ll meet the deadline of the new EU directive MiFID II. If they miss it they could face fines and lose business.

Many financial institutions risk missing the deadline for the new EU directive MiFID II. This will have direct consequences for clients and result in further sanctions by supervisory authorities. Although the deadline has already been postponed until January 1, 2018, many players still haven’t even started implementing the necessary changes, according to a recent European survey.

In Sweden, discussion of MiFID II, the EU directive on markets in financial instruments, is focused on the ban on commission for financial advice. But the change in legislation surrounding the financial market is more extensive than that and includes tougher requirements for transparency, reporting and documentation. To a large extent the goal is to safeguard the interests of the consumer. This is good and creates new opportunities for serious players. But the changes required are extensive and if companies can’t implement them in time, fines and, at worst, lost business may be a reality for those companies.

Although the final date for implementation of the directive has been postponed by 12 months, 40 per cent of companies in recent qualitative research by PA are unsure whether they’ll make the required changes by the deadline. Lack of clarification in several areas and concerns about investing in changes before the requirements are finalised means 60 percent of the companies in the survey have chosen to park their MiFID II program until further notice.

Half of the companies in the survey said they needed to be notified before the end of the third quarter to be sure of making the necessary changes on time.

The uncertainty regarding how the EU guidelines are to be implemented in national law has resulted in many financial institutions choosing to wait and see. But this strategy is no longer an option.

Financial institutions should urgently take the following measures:

  • Apply scenario planning 

Waiting for clarification is risky. It’s essential to establish a number of hypotheses or business scenarios.

  • Involve the right people

Banks are labour-intensive enterprises with various internal stakeholders. Early buy-in is crucial for successful implementation. Business executives affected by specific changes need to be involved and informed at an early stage.

  • Start investing in better customer service 

Improvements in responding to consumer requests and needs are fundamental to MiFID II. The directive contains many such changes. Investing in centralized customer management systems that allow efficient and rapid customer service is one of several recommendations.

Regulations such as MiFID II present an opportunity for banks and investment firms to develop new products and services. Financial institutions that don’t adapt their business models to the new rules will face increased costs with low margins. So financial institutions must prioritise the issue and dare to look beyond the uncertainty.

Magnus Krusberg is an financial services expert at PA Consulting Group                       

Find out more about our work in Financial Services.

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