EU Plans Could Cost British Banks Billions

Britain's financial services industry has hit out at EU proposals, which they say will cost Europe's banking business over one billion euros.

The head of the UK's city regulator the Financial Services Authority (FSA) has criticised "deeply unsatisfactory" Commission proposals which could force institutional investors to spend an extra €1 billion on upgrading IT equipment.

The FSA has blasted Brussels for "imposing complicated regulations that could land European banks with a €1bn technology bill".

The Markets in Financial Instruments Directive (MiFID) is set out to make financial firms declare more information on how they sell products than the current Investment Services Directive. Some say that the initiative is likely to cause huge outlays on IT upgrades if companies are to comply.

Chairman of the FSA Callum McCarthy has described the moves as "deeply unsatisfactory" and says that UK banks will have to implement more IT equipment when no cost-benefit analysis has been carried out.

McCarthy said in his AGM statement: "That kind of approach to policy-making cannot be sensible. Going forward we will do all we can alongside a growing band of regulators who share our commitment to assessing costs and benefits, to support Commissioner McCreevy's determination to make rigorous impact assessment a vital determinant of EU legislation.

"But it is already clear that the MiFID changes will impose significant costs on the UK market including, for example, through systems changes and IT upgrades. Industry is understandably concerned about the potential scale of these costs - and I share those worries. It is far from clear that the benefits to the UK will outweigh the costs."

The MiFID will require investment firms to provide more transparent information - such as quotes from competing firms - on how they market funds, life insurance, bonds and other retail products.

Financial analyst Celent has said that MiFID would force European financial firms to spend €1bn on IT.

The analyst's report said: "Most financial institutions remain totally unprepared for MiFID and are only in the earliest of stages of even understanding what the directive entails... Under MiFID, exchanges will lose significant revenues in terms of market data, print fees for off-exchange trades and trade fees. The total annual lost revenues will be over €300m annually. MiFID will require significant IT investments by market participants, totalling over €1bn."