Three EU countries face legal action over Mifid

The European Commission (EC) is referring member states the Czech Republic, Poland and Spain to the European Court of Justice over non-implementation of the Markets in Financial Instruments Directive (Mifid).

The Commission warned European Union member states they would face legal action if they did not transpose the Mifid rules into national law by the deadline of January 31, 2007, which gave individual firms nine months to adapt to the new regime before Mifid came into force on November 1.

But, the commission said on January 31, “a large majority of member states” missed this deadline, meaning companies in the delayed countries did not have enough time to meet all the Mifid requirements.

Five European regulators had not even finalised their approach to Mifid by the time it came into force. According to the European Commission's Lamfalussy League Table, which tracks the progress of European regulators in adopting the rules, the Czech Republic, Spain, Hungary, the Netherlands and Poland had not transposed all the regulations as of November 13.

“The Czech Republic, Poland and Spain are being taken to the European Court of Justice because they were the most delayed of all the European member states to transpose Mifid rules,” said a spokesperson from the EC in Brussels. If the Court sides with the EC, it will ask the member states to rectify the situation within “a reasonable time period”, according to the spokesperson; continued failure could mean a fine.

But one lawyer was sceptical about the effect of a court action. "The court process is basically toothless in dealing with late implementing states," said Bob Penn, a partner at the law firm Allen & Overy in London. "Experience suggests that the commencement of proceedings against the member states will have little practical impact in terms either of speeding up their implementation or of modifying their behaviour more generally: previous sabre-rattling by the Commission over earlier directives such as the Prospectus and Market Abuse Directives has not really speeded up the late implementers, who know that they have plenty of time to implement before the court process will have been completed."

The UK’s Financial Services Authority (FSA) was one of the national regulators that did manage to interpret the rules into British law in time. However, Penn highlighted the fact that the regulator has been lenient towards British firms so far, even though it has now been three months since the rules came into effect. “To my knowledge, the FSA has not taken any legal action against any UK investment firms as yet,” he added.

“It is not surprising the FSA has not taken legal action over Mifid so far. As was the case with enforcing other new regulations, such as the Financial Services and Markets Act 2000, the regulator is giving firms some time before it starts taking legal action,” said Simon Gleeson, partner at law firm Clifford Chance in London. However, the authority said it does issue private warnings to companies that are not made public knowledge.

Gleeson said the largest banks have made the most effort to comply with Mifid, as they would be likely to be targeted for high-profile legal cases if they did not make an effort, while some medium and small investment firms might still not have met all the requirements. But although Mifid came in to effect several months ago, EC member states are still far from consensus on issues such as customer documentation and fee disclosure, said Gleeson.

See also:
Simply the best?
Is IT Mifid-ready?
European countries miss January Mifid deadline