Presentation of MIFID Project lead by the Italian Banking … · 2007-09-20 · Presentation of MIFID Project lead by the Italian Banking Association David Sabatini (ABI) – Enrico

Workshop “MIFID Transposition and Implementation in Romania”Convergence Romania Financial Sector Modernization

6 July 2007

Presentation of MIFID Project lead by the Italian Banking Association

David Sabatini (ABI) – Enrico DI Leo (KPMG)

09/07/2007 2

Presentation of the “MiFID Special Project”

Contents

1 > The MiFID Special Project: The Goals

2 > Organisational Structure

3 > Activities Planning

4 > Project Output

5 > The Level of preparation for the MiFID (survey)

09/07/2007 3

MiFID: TimingEU

Directive 2004/39/EC

April 2004

Level 2 Measures: Directive 2006/73/EC &

Regulation 2006/1287/EC

August 2006

31/12 2006

CESR

ITALY

2006 Community

Act

MEF Consultation

MiFID Implementation

March 2, 2007

March 23, 2007

Industry adjustment

Nov. 1, 2007

CONSOB / BoIConsultations Implementing Regulations

Sept. 11, 2006

Nov.27, 2006

Dec. 15, 2006

Feb. 9, 2007

March 2, 2007

Programme on level 3

Work

List of minimum records

Market Transparency

Inducements&

Passporting

Guidelines on

Transaction reporting

Feb. 17, 2007

Best execution

March 16, 2007

L1 L2

Deadline for implementation

by Member States

L3

July 6, 2007

Transposition in national law (TUF)

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Commission Regulation EC 1287/2006

of 10 August 2006 implementing certain aspects

of the MiFID Directive(Level 2)

Directive2004/39/EC

of 21 April 2004 on

Markets in FinancialInstruments (Level 1)

MiFID

Commission Directive 2006/73/EC of 10 August 2006

implementing the MiFID Directive (Level 2)

2006 Community Act of 6 February 2007

setting forth guiding principles for the

implementation of the MiFID Directive

Changes to

the Italian Financial Act (TUF)

Changes to Consob Reg.on Intermediaries

Changes to CONSOB Reg.on Markets

Other Regulations: Bankof Italy & Ministries

Risk: inconsistency with the rules

MiFID Directive: Implemention

09/07/2007 5

09/07/2007 6

The MiFID Special Project: The Goals

The Markets in Financial Instruments Directive (MIFID) is part of the Financial Services Action Plan (FSAP) launched by the European Commission in May 1999. The Plan establishes coherent regulations on the execution of orders by Stock Exchanges and other trading venues, and by investment firms, in order to:

- improve integrity and transparency of financial markets,

- stimulate competition between traditional Stock Exchanges and other trading venues.

The entry into force of MIFID on Nov. 1, 2007, has a significant impact on the banking and financial sector.

ABI launched a Special Project on MiFID to support banks to meet the requirements of the new regulatory framework and to adopt the necessary adjustment strategies.

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The MiFID Special Project: The Goals (cont’d)

ABI’s Executive Committee launched the MiFID Special project to help Italian banking industry in adequate and fast implementation of the MiFID Directive,with these goals:

§Analysing the main aspects of the legislative framework and providing guidelines and implementing strategies;

§Defining ways to support the banks in making the adjustments necessary to meet the new regulatory requirements.

The MiFID Special Project provides operational guidelines

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Introduction on the MiFID Special Project

Contents




4 > Project Output

5 > The Level of preparation for the MiFID Directive

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Organisational Structure

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Organisational Structure (cont’d)

Organisational arrangements in support of the MiFID Project:

§ a Steering Committee, composed by Members of the ABI Executive Committee, with these responsibilities:

i. To decide the strategies for the banking sector to achieve the project goals;

ii. To raise awareness of the whole banking sector about the necessary measures to implement the MiFID;

iii. To set goals, plans and priorities of the Project.

§ a Coordination Committee, with these responsibilities:

i. To coordinate working groups;

ii. To evaluate proposals made by the various working groups;

iii. To draft proposals to submit to the Steering Committee for final approval.

§ a Technical Secretariat, to support the Coordination Committee with the task of monitoring all activities, managing documents related to the Project as well as communications among Members.

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§ Four Working Groups, each of them focussing on one of the principal investment services (trading, placing, investment advice and portfolio management), with the following responsibilities:

i. Performance of tasks assigned to them;

ii. Drafting operational plans;

iii. Providing expected deliverables within the agreed schedule;

iv. Providing the Technical Secretariat with the information necessary to regularly monitor all activities;

v. Supporting the Technical Secretariat in making SAL.

An ABI expert chairs each Working Group, which is composed of the representatives of member banks, working in the various departments: Marketing/Distribution network, Finance, Organisation/ ICT and Compliance / Audit / Legal.

Affiliated banks actively contributing to the Working Groups’ activities are 47, while there are about 190 people involved, i.e., about 100 for each Working Group.

Finally, each bank appointed an internal contact person acting as liaising person between ABI and each bank in order to ensure dissemination of the information and the outputs of the Project. 82 banks joined this initiative.

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§ Four Drafting Groups, composed of 3 or 4 people chosen among the members of the Working groups, with the task of reviewing the Project’s semi-finished outputs before discussing them with other members.

§ Consultation Forums aimed at creating interaction between the banking sector and other sectors equally impacted by the MIFID: above all, other stakeholders (consumers, financial operators, firms, markets), as well as ICT Providers & Consulting companies, which will support banks in implementing the new EC rules.

In particular, there is:

− a forum for ICT providers and Consulting Companies, organised in cooperation with ABILab;

− a forum for associations representing firms, financial practitioners, issuers, markets, etc..

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§ The table shows involvement of the Working Groups in the discussion of the 19 mattersidentified by the Directive. The topics have been assigned to the four Working Groups in a way to ensure the contribution of many Working Groups in the discussion of horizontal topics.

§ For organizational reasons, there is a Working Group leader for each of thehorizontal service.

§ 40 banks and banking groups contribute to the Project, while there are about 190 people involved, i.e., about 100 for each Working Group.

Working Group interesting in the matter

Working Group Leader in the matter

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Supporting Activities

§ Under the MIFID Project, ABI launched, in cooperation with Bancaria Editrice, the “MiFID ABI Online – Getting ready for the new financial services rules”.

MiFID ABI Online is an electronic service which will collect all the outputs of the MiFID Project (gap analysis, impact assessment tool, decision-making tree, guidelines, templates), together with new MiFID regulations, such as CESR and/or European Commission documents, ABI Circular already or to be published on the MiFID. A paper version, the so-called MIFID ABI Bluebook, will be realised later.

§ Moreover, the MiFID Project provides for training activities, which build on the ongoing FSAP training project. In particular, ABIFormazione, in cooperation with ABI Experts in Finance and Financial Regulations will make a suitable training proposal to banks.

The training proposal will include: workshop, training courses, including web-basedcourses and a learning portal (http://fsap.abi.it).

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Contents




4 > Project Output


09/07/2007 16

Activities PlanningSinergies between the ABI MiFID Special Project and the activities of affiliated banks are shown below.

It should be noted that outputs can be efficient tools for each bank to implement the MiFID Project.

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Activities Planning – (cont’d)

TemplatesThis stage aims at finalising templates for those documents that banks are commonly required to draft and provide to their clients.

STAGE IV –Finalising Templates

Guidance Lines/Position Papers

In stage III, banks will receive guidelines to perform most relevant activities in the best way in order to comply with the new rules.

STAGE III –Operational Guidelines

Impact Assessment tool

Decision-making trees

The objective of stage II is to finalise am Impact assessment tool to help banks in collecting and organising information on how the new rules impact them. This assessment will be used in drafting an adequate action plan implementing the Project.

The decision-making tree tool provides banks with an efficient tool in making business strategic choices.

STAGE II – tools for the “TO BE” Model

GAP Analysis ToolThe objective of stage I is to finalise a GAP Analysis tool for each of the 19 matters so to allow for the analysis of the gap between the bank’s actual arrangements and the new Directive requirements.

STAGE I –“AS IS”Analysis Tool

Action Plan

Project Management Tools

The objective is to prepare, share and finalise the Action Plan to implement the MiFID Special Project.STAGE 0 – Planning

Expected DeliverableDescription Stages of the

Project

A description of the different stages of the Project and the expected “deliverables” are described below:

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Activities Planning – (cont’d)

09/07/2007 19


Contents




4 > Project Output


09/07/2007 20

Project output (cont’d)

√

√

√

√

awaiting

√

Decision-makingtrees

to be done

√

to be done

√

√

to be done

to be done

√

Guidelines

√√Execution only

√√Systematic Internalization

√√Alternative Trading Sistems (SSO)

√√Reporting Transactions

√√Post-trade Transparency

√√Conflicts of interest

√√Inducements

√√Internal Audit

√√Personal transactions

√√Organizational requirements

√√Outsourcing of financial services

Impact AssessmentGap AnalysisMIFID Matters

√√Best Execution

√√Client Order Handling

√√Inv. Researches and mkt communic.

√√Investment Advice

√√Tied Agents

√√Information to clients

√√Suitability - Appropriateness

√√Clients Classification

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The Gap Analysis toolThe GAP Analysis Tool is the first output in the framework of the MIFID Project.

It is a support tool for banks allow for the analysis of the gap between the bank’s actual arrangements and the new Directive requirements.

This tool exists for each of the 19 matters identified by the MIFID Directive. In fact 19 assessment forms have been created. During this stage, Working groups have been working together.

In order to make it simpler, the 19 matters have been divided into 4 categories, and each category assigned to a Drafting Group.

Drafting Groups were in charge of verifying the contents of the forms and requesting additional information/modifications, based on comments made by other Working Groups’ members.

At the end of this process, Drafting Groups send the revised forms to the Technical Secretariat. During the general meeting of the four Working Groups, the forms are discussed by all members.

The Final version of the Gap Analysis Tool has been officially approved by the Coordination Committee of the MiFID Project.

09/07/2007 22


• How the Gap Analysis Tool works

The GAP Analysis Tool works as following:

Topic: main sub-matters to be analysed under each of the 19 matters;

Scope: investment services, financial instruments and types of clients affected by the new rules will be identified with respect of each of the 19 matters,

Legislation: under each matter, EC and regulations in force as well as the new ones (not yet in force) will be identified;

GAP Analysis: for each sub-matter, an analysis of the gap between the bank’s actual arrangements and the new Directive requirements will be carried out to identify the necessary adjustments.

09/07/2007 23


An example of how the Gap Analysis Tool works

09/07/2007 24


Impact Assessment ToolThe Impact Assessment Tool is aimed to support banks in assessing existing gaps and necessary adjustments to meet the requirements of the new Directive.

In particular, the tool aims at:

− Providing an overview of the new Directive requirements for the different investment services;

− Breaking down the MiFID matters into simpler concepts to facilitate the impact assessment;

− Finalising an outline and guidelines for the assessment of the existing gaps;

− Allowing for the assessment of the effort necessary to implement MiFID requirements in order to finalise the Project Master Plan.

The Impact Assessment Tool is linked to the Gap Analysis Tool and therefore it has been created under all the 19 MiFID matters.

The tool is shared with all members of the Working groups and formally approved by the Project Coordination Committee.

09/07/2007 25


How the Impact Assessment Tool worksL’Impact Analysis Tool consists of 4 matrices:

1. The Gap Matrix describes all the areas were there is a gap between the actual arrangements (AS-IS situation) and the new MiFID requirements, providing a qualitative analysis of the impact (high/medium/low/n.a.) according to the four areas of analysis identified (Organisation, IT, Legal & Compliance and Business). Each bank decides whether it wants to describe the gap or simply indicate the title;

2. The Matrix for Organizational Impacts describes, for each of the area where a gap has been identified, the changes to the procedures of the Bank and the effort to implement them;

3. The Matrix for impacts on IT describes, for each area where a gap has been identified, the changes to the procedures of the Bank and the effort to implement them;

4. The Matrix for Legal & Compliance describes, for each area where a gap has been identified, the necessary changes to comply with the new rules, specific templates, and the effort to implement them.

There is not a matrix specifically describing impact on the business as the impact on business has been analysed in connection with the finalisation process of the Decision-making trees.

The Impact Analysis Tool must be filled in by each bank of the same group and indicate the name of the contact person responsible for the analysis of the gap and the implementation of the adjustments.

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How the Impact Assessment Tool works

§ The Gap Matrix is based on the Gap Analysis Tool templates

§ Some of the specific fields of the Gap Matrix match the informationcontained in the Gap Analysis Tool template. They relate to otheranalysis matrices.

09/07/2007 27


Decision-making trees

Decision-making trees provide banks with efficient tools in deciding business strategies in order to comply with the MiFID Directive requirements.

They have been developed in connection with the following 5 MiFID matters*:

− Clients Classification

− Best execution

− Execution only

− Systematic Internalization

− Alternative Trading Sistems (SSO)

− Inducements

Decision-making trees are created internally then reviewed by Drafting Groups.

The revisions made by the Drafting Groups are discussed with all members of the Working Groups and then formally approved by the Coordination Committee.

* Advice has not been taken into account at this stage, because there are no clear interpretative guidelines on this matter and the Members of the Working Groups prefer to wait for further instructions by the CONSOB. Therefore no decision-making tree has been developed in connection with this matter.

09/07/2007 28


Example of a decision-making treeThis is an example of a decision-making tree to apply to clients classification and, in particular, to the re-classification of existing clients.

09/07/2007 29


Description of Operational Guidelines

The aim is to compile guidelines for the investment firms that elaborate and disseminate investment researches. These must indicate: types of involvements and qualification criteria for financial analysts operating within the investment firm as well as for independent analysts; ii) investment research requirements; iii) the procedures that intermediaries shall adopt to produce and disseminate researches, according to articles 24 and 25 of MiFID L2 provisions; iv) the characteristics of the marketing communications and possible application to trading (sales literature, trading ideas, morning notes) and placing activities.

Inv. Researches and mktcommunications

The aim is to assist banks in making the changes required by the new rules in the area of categorisation of (new and existing) clients and their positions.

ClientsClassification

Scope of Position PapersMiFID matters

These Guidelines aim to assist banks in implementing the requirements of the new Directive.

In the beginning, Guidelines (so-called Position Paper) will be developed on the MiFID matters below.

09/07/2007 30


Description of the Operational Guidelines – cont’d

The objective is to compile guidelines to help banks to establish their “order execution policy” mentioned in art. 21 of the MIFID and its implementing provisions. In particular, we will discuss how to select the factors and the trading venue for order execution as well as the factors to take into account for regular and extraordinary revision and control of the effectiveness of the order execution policy. We also aim to compile guidelines for banks to draft their order transmission policy and to select their dealers.

Best execution

The objective is to help intermediaries to classify the different types of fees, commissions and benefits that they receive or pay in order to identify those ones falling under the exceptions mentioned in letters a), b) and c) of art. 26 L2. The guidelines also indicate the conditions under which such fees or commissions are allowed, according to letter b of art. 26 L2, so that intermediaries are free to choose those ones that best suit their business.

Inducements

The objective is to identify all possible organisational arrangements required by each type of conflict and identify the consequences on the business. In this way, intermediaries are free to choose the most suitable arrangement(s) to respond to the specific type of conflict.

Conflict of interests

Scope of Position PapersMiFID matters

09/07/2007 31


Contents




4 > Project Output


09/07/2007 32

The Questionnaire on the level of preparation for the MiDIF was prepared by ABI, in cooperation with KPMG, to measure how banks are getting prepared to meet the new requirements, which enter into force on November 1.

The questionnaire illustrates the threats and the opportunities of the MiFID Directive. It also show how the Italian banking industry is preparing itself to cope with this change in the regulatory framework, its opportunities and threats.

The survey was conducted with the banks that are members of the Technical Committee dealing with Finance.

As of today, the representative sample includes 23 banks, which are large Banking Groups and smaller banks. Results shown in the slides are then provisional.

The results of the survey are shown in totals and anonymous.

Questionnaire on the level of preparation for the MiFID

• Introduction

09/07/2007 33

The questionnaire includes 17 questions divided into 5 sections:

1. The MiFID context and its impact

2. The impacts on the Italian investment market

3. The level of preparation for MiFID

4. Opportunities and threats for companies

5. Implementation costs of the Directive

The level of preparation for the MiFID• Structure

09/07/2007 34

The level of preparation for the MiFID1. The context and the impacts of the MiFID Directive - results

The legend

Among the main objectives of the Questionnaire, the representative sample agrees that the MIFID will create a more uniform regulatory framework in Europe and accelerate the integration of European markets.

Moreover, 81% of the banks contributing to the survey believe that MiFID is likely to boost competition on the markets and among intermediaries, and as a consequence to enhance transparency of capital markets.

53% of the representative sample is uncertain, however, that the Directive will increase liquidity of capital markets.

09/07/2007 35

The level of preparation for the MiFID1. The context and the impacts of the MiFID Directive – results (cont’d)

The legend

Among the impacts of the MiFID, about 65-70% of the representative sample believes that MiFID will enhance protection of retail clients, competitiveness of financial instruments’ price, and availability of objective/impartial advisory service.

The sample does not believe that the Directive will have a strong impact on the protection of professional clients and the choice of investment products.

09/07/2007 36

The level of preparation for the MiFID1. The context and the impacts of the MiFID Directive – results (cont’d)

The legend

The sample shows that software houses, MTF/alternative electronic channels, organised advisory, legal and IT services will mostly benefit from the MiFID Directive. Information Providers, Investment banks and outsourcers are also winners.

On the contrary, the majority of the sample believes that Stock Exchanges and stock brokerage firms, followed by commercial banks, will be losers.

09/07/2007 37

The level of preparation for the MiFID2. The impacts on the Italian investment market– results

The legend

As for the evolution of the stock market, 70% of the sample envisages the entry of internalisers and foreign MTFs as very probable. Almost 50% of the interviewed banks envisage the reduction of trading costs and constitution of internalisers as probable.

The sample shows that the banks contributing to the survey are uncertain about the prospect of any increase of market liquidity and the constitution of Italian MFTs.

Finally, 40% of the sample does not believe that there will be a reduction of trade volumes in the Italian stock market.

09/07/2007 38

The level of preparation for the MiFID2. The impacts on the Italian investment market– results (cont’d)

The legend

As for the evolution of SSO, the survey shows that the banks interviewed are uncertain about the transformation into MTF and of banks into internalisers for bond instruments.

Instead, more than 78% of the sample envisages the transformation of banks into internalisersfor their own issues as probable.

09/07/2007 39

The level of preparation for the MiFID2. The impacts on the Italian investment market– results (cont’d)

The legend

More than 80% of the sample agrees that an offer by banks of advisory services to private clientsis probable. Therefore, as seen, the development of advisory activities by independent subjectsis probable as is the offer of advisory services by banks to upper affluent clients.

52% of the sample is uncertain about possible changes to organisational/distribution system.

09/07/2007 40

The level of preparation for the MiFID3. Level of preparation - results

Among the requirements proposed in the Questionnaire, the sample shows that the Directive has been examined, and in almost half the cases, an internal gap analysis has been conducted, involving top management as well by examining CESR proposals and implementing the adjustment plan*.

*Note that the responses to the Questionnaire are received over a long time period (about two months), therefore the information on the preparation by the banks could refer to another time period.

09/07/2007 41

The level of preparation for the MiFID3. Level of preparation – results (cont’d)

The regulatory areas that will impact banks the most are those related to execution policy, best execution, client profilation and conflicts of interest management.

Instead, for what concerns adjusting internal bank functions, the sample believes that MiFID will have more of an impact on IT systems, internal controls, training and organisational processes.

Legenda

09/07/2007 42


As for implementing measures, more than half the banks surveyed considers streamlining structuresas a priority. Almost equally as important is the need to externalise systems and infrastructure and to make the network services more efficient.

09/07/2007 43


Almost all the banks surveyed envisage the delay in defining regulatory aspects as the principal obstacle in adjusting their business. Moreover, more than 70% of the sample is uncertain on how to apply the new requirements and almost half envisages the risks related to possible delays in implementing the required compliace/organisation measures.

09/07/2007 44


70% of the sample states that there will be a Committee in charge of implementing the MiFID Directive and this person will report to the CEO.

Less than 20% of banks state that the Finance Department will be in charge of implementing MiFID.

09/07/2007 45


About 70% of the sample agrees that adjusting to MiFID constitutes a separate object, which is not integrated with the other ongoing initiatives.

09/07/2007 46

The level of preparation for the MiFID4. Opportunitites and threats - results

The legend

As regards to scenarios proposed for the companies in order to implement to MiFID, more than 50% of the sample envisages as probable that there will be a wider offer of services, that they will keep/reduce their intermediation activity to collection and transmission of orders, and commercial agreements to join a MTF.

Almost 90% of the sample envisages as not probable or impossible the execution of client orders on its own, while about 80% is uncertain about the constitution of its own MTF.

09/07/2007 47

The level of preparation for the MiFID4. Opportunitites and threats – results (cont’d)

65-75% of the sample feels that the principal threats to companies are the revision of commission structure and reduction of broker margins. More than 50% instead believe that excessive adjustment and compliance costs are a threat for them.

09/07/2007 48

The level of preparation for the MiFID

5. Implementation costs of the Directive - results

Almost all the banks surveyed envisage as significant or quite important the costs arising from the revision of agreements and of the notice to clients. Therefore, they believe as important costs for IT adjustment, client profilation, best execution, transparency, compliance, planning, and external advice.

The sample does not believe that costs related to possible changes to organisational arrangements and business model are significant.

The Legend

09/07/2007 49

The level of preparation for the MiFID5. Implementation costs of the Directive - results (cont’d)

Below there is the position* of the various banks, by area/activity, according to the MiFID impacts in the planning (initial) and current (ongoing) phases.

* Results are shown in decreasing ordering, i.e., no 1 identifies the area/activity which was mostly impacted.

09/07/2007 50

Contacts:

Enrico Di Leo

KPMG Advisory

+ [email protected]

David Sabatini

ABI

+ [email protected]

Documents

Presentation of MIFID Project lead by the Italian Banking … · 2007-09-20 · Presentation of MIFID Project lead by the Italian Banking Association David Sabatini (ABI) – Enrico