What will it take...?

Wearily, one wonders what it will take for the "colleagues" to give up or, failing that, for us to rise up and slaughter them. Just how much more are we going to tolerate?

The latest in a long line of imposts is the "ambitious" new EU law known as the "markets in financial instruments directive" (Mifid). Like all the laws from this ghastly construct, is primary purpose is integration, this one though creating "a pan-European market for investment products".

The law supposedly allows investment companies to operate across the EU based on the authorisation of their home regulator and Brussels hopes the regime will stimulate cross-border competition in financial services.

However, says the Financial Times, banks are worried about it and have complained about the cost of implementing its complex provisions. And – love them or hate them, when the banks are worried, we should all worry.

Only a few days ago The Telegraph reported that the Square Mile was now the beating heart of the country and accounted for almost a third of the economy - twice the contribution from the manufacturing sector.

The Office for National Statistics said banks, insurers, management consultants and other financial services had contributed 30.2 percent of the nation's wealth in 2003, or £310.9billion. In 1995, the share was 24 percent.

Now Mifid, together with an ever-increasing number of directives affecting financial services, is creating considerable grief, and eroding the profitability of the City, which must compete in an international market.

What is particularly concerning the banks about the directive, though, is that when it was adopted last year, it left many crucial details to be settled later in a procedure involving the European Commission, national governments and regulators.
That process has now reached a decisive stage, and many companies say draft proposals contained in internal Commission working documents would be highly damaging to the sector if implemented unchanged.

The European Banking Federation (FBE) has hit out at a draft plan to force banks to reveal to the market details of large equity positions they have taken. In a paper submitted last week as part of the Commission's consultation on Mifid, the FBE describes the proposed rules as "too complex, cumbersome and restrictive".

It also warns that "investment firms which have entered into risk positions will be in danger of the market turning against them if they are unable to unwind their positions rapidly". The FBE has also criticised a Commission plan that would force banks to record and retain tapes of all client orders. "Our calculations clearly indicate that the costs of setting up the system would exceed the expected benefits for the clients," the federation says.

Wim Mijs, chairman of the FBE's financial markets committee and the head of government affairs at ABN Amro, has told the FT: "We are sailing into unknown territory. Industry and the EU institutions are trying to build a European capital market, but because some of the concepts used in Mifid are radically new there may be mistakes that would destroy value rather than help create a European capital market."

A large group of international and European associations, including the London Investment Banking Association, the International Capital Market Association and the Bond Market Association, have also raised concerns. They made clear in their public response to the Commission that they are concerned about a range of issues "which appear to have been introduced at a late stage without any formal assessment of their market impact".

Among the issues raised by the group are the Commission's proposal to require the reporting of share loans and Brussels' plans for resolving conflicts of interests. The group told the Commission last week that the proposal on stock lending "would lead to an intricate and costly infrastructure to generate information which will be meaningless and misleading".

The Commission stressed that none of the plans contained in the working documents were final, and that it would only table a formal proposal in October at the earliest. It insisted it would take account of industry complaints.

And indeed it will… and then ignore them. As I was saying, what will it take…?

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