He said banks offering forex derivatives need to put in place procedures showing they can deliver best execution in terms of price on structures that they offer buy-side customers. "There will be a fiduciary responsibility on the broker to deliver the best price and the most appropriate instrument. Banks will need to change the way in which they operate so that they shop around to get the best prices, and they will need to be able to demonstrate that they have done this."
Currently, forex desks are unaware of the need to make changes, according to Marenzi. "There is a sense of denial, with people thinking that it only applies to equities. In fact a large part of the directive is focused on derivatives." Marenzi added that even spot transactions could be affected. "Where a spot deal is part of a wider transaction, for example the purchase of overseas equities, the fund would have to show that they searched for the best price."
Others were less pessimistic about the prospect of banks being able to implement the directive. David Clark, honorary president of Kent-based forex industry organisation ACI UK, said banks had already done a lot of work to comply with the directive but added that being prepared will still be a challenge. "There is a lot of plumbing that needs to be done, and it is still unclear how products like non-deliverable forwards will be affected," Clark said. He added that there needs to be better communication between different departments at banks to ensure people are aware of how the directive will affect them.
A senior official at a top global bank in London confirmed the view that foreign exchange departments are not focusing on Mifid as an issue that affects them.