19 June 2005

Article: New law to cost UK banks Euro 2.3bn

The European Union's markets in financial instruments directive (Mifid) is likely to cost UK banks Euro 2.3bn, says an Article of The Business online which refers to a survey of Atos Consulting. The directive has fast become a bete noir in the City of London and has provoked outrage over its proposals to reform rules over best execution and quotation of prices across the entire range of securities. Some market participants have said it will require the biggest shake-up in financial firms' IT systems since the Y2K threat posed by the so-called millennium bug five years ago.

Atos Consulting says the implications for UK banks of the directive - which will affect cross-border business, commodity derivatives and internalised trade - are only just becoming apparent. It will require investment in infrastructure such as trading venues, networks and data providers. These costs will be passed on to market participants.

Atos has calculated that the average UK investment bank will be subjected to an array of expensive IT costs as well as annual recurring costs when the directive comes into effect. These would include a Pounds 2m to 3m hit to bolster compliance, especially providing the proof of best execution that the directive requires.

In total, the average UK bank would face an initial cost of between Pounds 8m and 12m in the run-up to the application of the directive in 2007 and an additional annual recurring cost of between Pounds 1.1m and 1.6m.

The clarification of this legislation over the next six months could result in some reduction to these costs, but it could also result in significant increases

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