Turning Regulatory Compliance into Commercial Advantage: A Buyside Firms Approach Gareth Adams Execu

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Turning Regulatory Compliance into Commercial
Advantage A Buy-side Firms ApproachGareth
AdamsExecutive Director Regulatory Strategy
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November 1st in History

• 1512 The ceiling of the Sistine Chapel is
  exhibited for the first time.
• 1611 William Shakespeares The Tempest is
  presented for the first time
• 1683 The British crown colony of New York is
  subdivided into 12 counties
• 1755 Lisbon is destroyed by a massive earthquake
• 1800 John Adams becomes the first US President
  to live in the White House
• 1894 Nicholas II becomes the new Tsar of Russia.
• 1993 The Maastricht Treaty formally establishes
  the European Union
• 1998 The European Court of Human Rights is
  instituted.

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..and now
MiFID
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The MiFID Compliance Programme Programme Phases

• Familiarisation and awareness raising
• Began November 15th 2005
• Identification of key issues
• What elements require decisions?
• Who are the stakeholders for that decision?
• What information is required to make a good
  decision?
• What resources and elements are needed to
  implement the decision?
• Roll out of implementation plan
• Classic project methodology
• EXCEPT..

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The MiFID Compliance Programme The Reality Check

• This is how it really looks

Identify key issues
Develop strategy for key issues
Draft implementation plan
CESR releases new level 3 guidance
Identify key issues
Develop strategy for key issues
Country A decides to do it differently
Develop strategy for key issues
Draft implementation plan
So does Country B, but differently again
Draft implementation plan
Develop strategy for key issues
CESR releases new level 3 guidance and Countries
C F decide to postpone MiFID
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The MiFID Compliance Programme A cyclical
programme

• This is how it really looks

Identify key issues
Develop strategy for key issues
Draft implementation plan
CESR releases new level 3 guidance
Identify key issues
Develop strategy for key issues
Country A decides to do it differently
Develop strategy for key issues
Draft implementation plan
So does Country B, but differently again
Draft implementation plan
Develop strategy for key issues
CESR releases new level 3 guidance and Countries
C F decide to postpone MiFID
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The MiFID Compliance Programme

• Character of programme
• An iterative process
• Lobbying, interpretation and implementation run
  in parallel
• Steering group addressing a continuum, not a
  series of logical steps
• Progress
• UK good story about what we know we have to do
  with exceptions of some aspects of Best Execution
• Costs
• With some exceptions costs overwhelmingly
  management time and resource

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The MiFID Business Strategy

• Suffers from the same issues as the Compliance
  Programme
• Some aspects have emerged only lately from the
  mist
• Some remain resolutely in fog

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The MiFID Business Strategy

• Suffers from the same issues as the Compliance
  Programme
• Some aspects have emerged only lately from the
  mist
• Some remain resolutely in fog

• Best Execution
• Inducements
• Relationship between MiFID and UCITS

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The MiFID Business Strategy

• Suffers from the same issues as the Compliance
  Programme
• Some aspects have emerged only lately from the
  mist
• Some remain resolutely in fog
• Non-synchronous implementation
• Most strategies involve cross-border issues
• Decisions about pan-European services
• Decisions about locations of activities

• Best Execution
• Inducements
• Relationship between MiFID and UCITS

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The MiFID Business Strategy Key elements

• The importance of the Home v. Host definition for
  cross-border business and for branch structures
• The interaction with other Single market
  measures, particularly product Directives and
  other conduct of business measures
• Harmonisation of the MiFID requirements across
  countries
• Stability of the above for a sufficient time to
  deliver payback on strategic decisions taken now

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The MiFID Business Strategy The defensive aspect

• Competition in each domestic market will open up
  as non-domestic players enter under their Home
  State rules
• Specific MiFID measures are discriminatory to
  funds, notably intermediary disclosure
• On the market side liquidity and data
  fragmentation will complicate both trading
  decisions and the review of the adequacy of those
  trading decisions
• The simple need to manage change across a broad
  range of the business

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MiFID Opportunities Stating the obvious

• MiFID is a single market measure based on the
  precedence of Home State rules when activities
  are carried out cross-border
• MiFID is a maximum harmonisation Directive
  applying consistent standards across Europe

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MiFID Opportunities Two examples

• An internet-based funds supermarket or platform
• A centralised marketing and promotional activity
• Characteristics that support such ideas
• Ability to act cross-border with no branch or
  subsidiary presence
• Ability to commoditise offering within a
  non-complex context
• Issues that complicate such ideas
• Interaction between MiFID and UCITS registrations
• Marketing of UCITS covered in both Directives
  depending on active body

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First Mover The Three Key Ingredients to Success

• TIMING

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First Mover The Three Key Ingredients to Success

• TIMING
• TIMING

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First Mover The Three Key Ingredients to Success

• TIMING
• TIMING
• TIMING

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First Mover What will aid success

• Sufficiently large market clusters to build large
  scale business model
• Communication with regulators (the no surprises
  protocol)
• Extent to which the ambitions play to an
  organisations strengths and cultural bias