FINANCIAL experts are attempting to assess the impact the market in financial instruments directive will have on Guernsey. Recent seminars hosted by Ernst & Young and KPMG have been considering the terms and implications of a directive which one local delegate likened to ‘unravelling knitting’.

MiFID, which is being introduced to the European Union in 2007, is intended to make cross-border trading easier. It will also introduce significant alterations to the regulatory framework of financial services businesses.

‘MiFID is expected to change the financial market landscape. The aim is that pricing will be keener and liquidity deeper and that investor safeguards and compliance requirements will be consistent everywhere,’ said a KPMG spokesman.

Although not part of the EU, these changes might have a knock-on effect on Guernsey’s finance industry.

‘It is the most far-reaching reform of any financial market so far and there is a comparative lack of knowledge about this in Guernsey,’ said KPMG senior partner Jonathan Hooley.

‘It sets the tone for European business as a whole and it affects those businesses based in the EU with set standards, so they may introduce common standards across the board.’

Ernst & Young partner Peter Franks believes the island needs to weigh up the costs and benefits of deciding whether to adopt the directive.

‘While focusing on providing pragmatic and balanced regulation appropriate to investors, Guernsey must remain vigilant to the impact on its international reputation if non-adoption of MiFID-equivalent rules is viewed negatively by the international investor and regulatory community,’ he said.

Guernsey Financial Services Commission director of investment business Peter Moffat said the real impact of the directive could be gauged when it was implemented in the UK next year.

And he said that it would be meaningless for the island to follow a particular course of action before then.

‘There is extensive consultation in individual EU member states about how to implement the directive. National rules need to be agreed by the beginning of 2007 and be in force by November 2007,’ he said.

‘Guernsey is not, of course, an EU member state and so MiFID does not apply here. We recognise, however, that many Guernsey firms are affiliates of EU firms.

‘Because those firms are parts of businesses which will inevitably be affected by MiFID, it would make no sense here to create rules which ran directly counter to the requirements of MiFID.’

Mr Moffat said that the commission was putting a rules-review committee in place.

He said its objectives were to merge the rules applicable to administrators and custodians of open-ended funds and those relating to investment business licensees, to consider the rule developments needed to meet probable concerns raised by the International Organisation of Securities Commissions and the International Monetary Fund and to consider any other rule developments.

Mr Moffat said that a definitive timetable for a decision could not be made.

‘In addition to the three topics identified, the work of the rules review committee will be influenced by responses to the Harwood committee report, by the way EU member states implement the MiFID directive and by any other issues which may arise in the coming months.’

The Guernsey Investment Funds Association technical committee, which is chaired by Mr Hooley, is meeting regularly to review the directive.