Infringement procedures by Brussels against EU member states for failing to transpose provisions of MiFID into national rulebooks look likely, even if the Commission denies it has such plans. Only the UK, Ireland and Romania complied before the 31 January deadline.
Other countries that had already or were expecting soon to have transposed the Markets in Financial Instruments Directive into national law, that comes into effect on 1 November, were Belgium, Lithuania and Germany. A survey published in March indicated that four countries were scheduling transposition in November itself (Czech Rep, Finland, Hungary and Netherlands). At that time Spain was estimating ‘later', and Slovenia was simply throwing its hands in the air.
More gloom overshadows the scene, as the word ‘transposed' does not necessarily mean transposed and cleared. The Commission needs time to check the transpositions. However, it is in a strong position. It only takes one major country to transpose and MiFID is effectively activated, legally, right across the EU.
This brings in the single EU-wide trading zone in which an investment firm regulated in just one country will be able to sell its services throughout the bloc. No longer will international securities companies have to seek clearance to establish branches from regulators in every country - the procedure known as passporting. Stock exchanges will no longer have exclusive rights over buying and selling of domestic stocks and shares, as MiFID will promote competition between different types of ‘trading venues'.
The European Commission considers MiFID as introducing much-needed competition and efficiency to securities trading. It sees it as a cornerstone in its effort to invigorate the EU's plodding economy. According to the internal market commissioner, Charlie McCreevy, MiFID will ultimately increase the overall depth and liquidity of our financial markets. This will drive down the cost of capital for business, boosting EU industrial competitiveness.
If the Commission decides against infringement, that is, doing nothing at this stage, that would go against the grain. After all, the Commission is legally charged with ensuring compliance of EU rules. According to a text circulated in the Commission, "It is expected that within the next few weeks infringement proceedings will be started against countries that have not transposed MiFID". Starting infringement proceedings would be an attempt to stimulate action, not in itself such a great issue. It would simply be the start of a three-stage process. Only theoretically would it end up in the ECJ.
Another option is simply to give more time, to move implementation date on from 1 November. In practice, legislation, which has cleared constitutional hurdles in the EU democratic processes, would be hard to re-schedule. Oliver Drewes, Commission spokesperson, confirmed the Commission's position of sticking to deadline. He said that the Commission had already sent out a formal letter to the recalcitrant governments, presumably to chase matters up. While Drewes preferred not to comment on the infringement threats, his general tone is that the Commission will use every pressure it can to push EU governments towards compliance - that is, ‘steamrollering'.
Rumour that the delays on the part of slowcoach countries were motivated by lobbying from stock exchanges fearful that MiFID will bring in mammoth competition from international investment banks, mainly based in London, should be discounted. Karel Lannoo, secretary general of the European Capital Markets Institute (ECMI), said the root cause of the tardiness lies with the complexity of the MiFID rules. Turning those principles-based ideas into legal code is not easy, he continues: there is nothing for the national officials to crib from.
Wendy Reed, of PricewaterhouseCoopers, agrees. With regard to opposition from stock exchanges, she says there was "some reluctance initially, but what was really driving the delays was the practical matters".
In fact, delays in national capitals will most likely give rise to legal uncertainties. Both the Paris-based Paris based EU regulator, the Committee of European Securities Regulators (CESR), and the Federation of European Securities Exchanges (FESE), in Brussels, have commented that firms from countries running late will be cut out from benefiting from the system.