Time allocated for implementation of MiFID is too short
by Finanzplatz München Initiative
Munich, January 10, 2007 The Munich Financial Center Initiative (fpmi) believes that Germany’s government should not use its plans to incorporate the EU’s Markets in Financial Instruments Directive (MiFID) into Germany’s body of legislation as an occasion to enhance the powers enjoyed by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin – Germany’s Agency for the Supervision of Financial Services) by curtailing the independence of operation accorded to the country’s securities. The current draft of the act does not contain its predecessor’s plans to transfer the responsibility for the securities listing procedure from the exchange to BaFin. The Initiative welcomes this change.
fpmi also supports the objective of employing the implementation of MiFID to set up comparable legal playing fields for securities-related services in each of the EU’s countries. The directive’s regulations are highly complex. They also encompass and affect all kind of providers of financial services and the instruments which they supply. For these reasons, the term of implementation foreseen is too short. The act is scheduled to take effect on November 1, 2007. This term doesn’t give providers of financial services enough time to implement the directive. fpmi is therefore suggesting the postponing of the implementation for several months. One date of promulgation could be April 1, 2008.
The in-depth statements made by fpmi’s members on MiFID are contained below.
Association of Bavaria's banks: inadequate amount of timeThe EU’s Markets in Financial Instruments Directive (MiFID) constitutes one of the most important components of the body of laws setting up a single market for financial services in the Union. This market will ensure Europe’s customers of experiencing comparable legal conditions when availing themselves of securities-related services. Institutes operating on a transnational basis will be able to offer their services in markets governed by regulations which have been harmonized with each other. Germany’s banks are facing the challenge of ascertaining whether or not their departments which provide or deal with securities-related services satisfy MiFID’s provisions, and, should this not be the case, with the carrying out of the requisite measures.
Germany’s federal ministry has submitted a draft of the law which will implement MiFID by incorporating the directive’s provisions into Germany’s body of laws. This adoption is thorough and complete. Many of the draft’s provisions, however, require further regulation. This will be accomplished by the subsequent enacting of statutory ordinances.
The EU’s Commission has set a strict deadline for the promulgation of the law: November 1, 2007. The time of implementation remaining to the bank is inappropriately short. ZKA (Germany’s Central Banking Committee) is therefore calling for it to take effect on April 1, 2008. Set to take place at the beginning of 2008, the mailing out by banks of account statements to their customers is to include all MiFID-necessitated and caused information and the banks’ general standard terms and conditions.
Bavaria’s economics ministry: strengthening of competition for business between securities exchanges and service providersBavaria’s economics ministry welcomes the new draft submitted by Germany’s federal government to implement the EU’s Markets in Financial Instruments Directive (MiFID). Tabled in September, the initial draft submitted by Germany’s Federal Ministry of Finances was heavily criticized by Bavaria’s economics ministry, by the Munich Securities Exchange, by exchanges located in other German states, and by their respective governments. The point of criticism was the revamping of the country’s Securities Exchange Act. Carried out in conjunction with the implementation of MiFID, the revamping imparted BaFin (the German agency supervising its market in financial services) with more and greater powers, with this occurring at the expense of the operating independence of the exchanges. The protests issued by the affected parties caused Germany’s government to revise its draft. The newest version of the act does not contain the provisions mandating the listing of new securities to be handled by BaFin. It also does not grant the agency real-time access to the data compiled by the office monitoring the trading on the exchanges, and the settlement of the associated orders. The new law also does not give BaFin the responsibility for the supervision of the running and organization of the over-the-counter trading conducted at the exchanges.
Bavaria’s economics ministry has submitted a range of resolutions to the country’s Federal Council. The resolutions concern the draft law which the German government submitted to the Bundestag (the country’s parliament). The resolutions contain alterations in the Securities Trading Law which would increase the amount of protection provided to clients of providers of securities-related services. The resolutions also contain the details of regulations enabling such providers to implement them. The ministry’s proposal for the Credit Industry Act pertains to the providers of credit and other financial services’ maintaining business organizations meeting official requirements, and to these providers’ capabilities of transferring business divisions to other companies. These proposals are also designed to impart practical impact to the respective regulations.
The legislative process has been concluded. We now have the opportunity to witness the ramifications of MiFID’s regulations upon the financial services sector. Bavaria’s economics ministry expects these to include an intensification of the competition for business between the securities exchanges and providers of related services. Thanks to its having launched on May 2, 2003, Max-One, its highly successful trading system, the Munich Securities Exchange is well equipped for this fray. Max-One meets the requirements arising from the best-execution principle and pertaining to the assuring of accountability in pre- and post-trading in securities handled by service providers.
Munich Securities Exchange: we welcome the refraining from alterations in securities listing proceduresThe draft submitted by Germany’s government to implement the MiFID contains both dedicated provisions and a revision of the country’s Securities Exchange Act. A preliminary draft tabled on September 14, 2006 foresaw the transferring of responsibility for the listing of issues on securities exchanges from the exchanges themselves to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This proposal no longer forms part of the draft. The Munich Securities Exchange welcomes this move. In a position paper and at a hearing held by Germany’s Federal Ministry of Finance, the Exchange had pushed for the retention of the current system. The Exchange’s statements had the following thrusts:
- The MiFID does not require the transferring of responsibility. The assumption of the ultimate responsibility for such listings by a central supervisory body is standard neither to other EU member states nor on important international capital markets. The securing of permission to list is in other EU member states and in other countries around the world, rather, the responsibility of the exchanges themselves. This divergent practice would not accord to the needs of the industry and would contradict the basic objective of the pan-European legislative process: the creation of a harmonized, pan-EU capital market.
- The setting up and handling of listing systems and procedures have been one of the exchanges’ main responsibilities for many decades. This arrangement has provided the Federal Republic of Germany with a dynamic and variegated capital market. It is comprised of a large number of market segments. These serve an equally heterogeneous range of publicly-listed companies. This heterogeneity is accounted for by the existence of a variety of preconditions and obligations applying to registration and its aftermath.
- The fees charged to issuers have long been highly attractive by European standards. Issuers of shares have to pay a mere €3,000. Fees for the registration of bonds generally amount to a couple of hundreds of euros. In contrast to the practice on the Frankfurt Securities Exchange, Munich does not require issuers to pay annual quotation fees.
- Munich’s listing procedure has repeatedly proven its mettle. This excellence is attested to by the following figures. Some 590 listing procedures were successfully pursued on the Munich Stock Exchange in the period stretching from January 2005 to September 2006. New issuers are offered, on a free of charge basis, consulting services. Provided by experienced and long-serving Exchange staff members, these services ensure that the issuers have made all preparations requisite for their products' being listed. For these reasons, the services are highly-prized by companies preparing to be listed. The services have facilitated the use by Germany’s SMEs (small and medium-sized enterprises) of public markets for capital as a main source of financing. Preconditions for the successful provision of such services are proximity and in-depth expertise in the respective market. Such traits and qualities are particularly prevalent in regionally-active securities exchanges.
Deutsche Bundesbank: Assuring financial and purchasing power stabilityThe assurance of the maintenance of purchasing power and of financial stability are two of a central bank’s prime responsibilities. The pursuing of these involves the bank in the regulation of markets, as does another objective: the creation of an index in the Euro currency system for collateral which is eligible for refinancing with central banks. Achieving this entails the setting up of correspondingly regulated markets, upon which this collateral is traded or listed. In learned commentaries contained in the monthly reports published for January 2006 and for April 2006, the Bundesbank detailed its positions in both these areas. The full-length texts (in German) are to be found on the Deutsche Bundesbank’s Website at:
Regulierung Wertpapiermärkte (PDF, 120 kB)
as well as at:
Sicherheitsverzeichnis (PDF, 108 kB)
Association of Bavaria’s cooperative banks and credit unions: restructure regulations governing securities dealings to make them more comprehensibleThe Association views the following clusters of subjects as being the most important in assuring the successful implementation of MiFID:
- A cogent definition of “improvement of quality” in § 31 d of the draft of the Securities Dealing Act (SDA)
The draft formulated by the experts staffing Germany’s Federal Finance Ministry of § 31 d of SDA forbids as a general rule grants, which the draft also defines as being commissions, whose furnishing is associated with the rendering of securities-related and derived services, unless such grants serve to improve the quality of the services provided to the customers, and unless their existence is divulged, at length, to the customers while they are being briefed.
The Association views the following clarification as being requisite. Due to the divisions of labor between production and distribution prevailing in corporate groups, the paying of commissions for distribution and maintenance of accounts innately serves the purpose of guaranteeing a high quality of service provision to customers.
The maintenance of a statewide network of banks is a highly expensive affair for Bavaria’s Raiffeisen and other cooperative banks. These banks are staffed by highly-qualified staff members, and are thus capable of guaranteeing their clients the provision of expert securities-related and derived services. These facts mandate the requiring of national-level legislators that they formulate regulations providing concrete protection to this high-quality infrastructure of consulting.
- Simplifying the SDA and avoiding new bureaucratic requirements
The revamping of SDA should result in a simplification of the regulations currently governing the dealings in securities. The restructuring of these regulations should lead to be their being easier to understand and adhere to.
The EU-level measures serving as legislative templates contain a considerable beefing up of the so-called “duties of exploration and information”. These duties to report are congruent, to a large extent, with the requirements in force since December 2004 and pertaining to the remote-access rendering of financial services. MiFID impacts upon all areas of securities-related and derived services. We foresee this breadth of impact as causing the duties to report to achieve a new dimension of requirement, and this notwithstanding the fact that the obligations to furnish information stipulated by the remote-access regulations are already considered to be very bureaucratic in nature. To the extent permitted by the EU ‘templates’, the effort thus has to be made to formulate national-level legislation alleviating the burden of this bureaucracy, and of keeping the associated expenditures as low as possible.