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Introduction

The Markets in Financial Instruments Directive (MiFID) is arguably ‘the most significant European Union legislation for investment intermediaries and financial markets since 1995[1]. In effect MiFID is succeeding the now outdated and flawed Investment Services Directive (ISD) (Directive 93/22/EEC) and aims to create a harmonised and holistic approach which is lacking in the ISD; this includes expanding regulation to financial service areas such as commodities derivatives. It draws a much wider net than ISD because it is looking to cover a wide variety of financial instruments and investment services which previously suffered from the divergent approach of member states towards the whole issue.

The significant nature of the MiFID is unsurprising given its important role in the European Commission’s Financial Services Action Plan (FSAP) which serves a very significant purpose; ‘creation of an efficient EU single market for financial services.[2] The FSAP had this overarching goal but moving from such abstract aims, the E.U. had specific qualities in mind when it drew up the individual ‘packages’ or draft legislation that made up the FSAP proposals. The EU Commission commenting on FSAP in 2004 stated:

The watchwords for the Financial Services Action Plan legislative proposals were cross-border competition, market access, enhanced transparency, market integrity, financial stability and efficiency. Overall, FSAP legislation remained faithful to these guiding principles… .’ [3]

Whilst, next month would have been the normal deadline for transposition of Directive 2004/39/EC into the domestic law of member states there has been a recognition by the Commission that MiFID is of such complexity and requires widespread consultation that they have pushed the deadline back to November 2007. This means that MiFID is very much in the public awareness, especially in the UK financial sector which is participating in the current government consultation exercise over the implementation of MiFID into U.K. Law

The major focus of this work will be on critically assessing the degree to which MiFID, in its current state, meets the ‘watchwords‘ that FSAP’s proposals were supposed to embody. MiFID is perhaps the ideal choice for this analysis as it was seen by the Commission as ‘a central component of the Financial Services Action Plan[4] and elsewhere as a ‘cornerstone[5]. The importance of MiFID to the whole legislative programme outlined by FSAP is of such a nature as to make it critical that it live up to the principles that FSAP sought to embody.

MiFID & the Watchwords

The FSAP was promoted vigorously by the Lamfalussy Report in light of what was seen as an existent European Union regulatory system that was ‘too slow, too rigid, complex and ill-adapted to the pace of global financial market change[6]. This attitude is one of the major stimuli for a European Union wide Financial Service ‘revolution‘ which at a policy level consists of the Lisbon Strategy[7] and the ‘Lamfalussy Process[8]. The interconnectedness of the respective programs was pointed out by Frits Bolkestein[9]:

The creation of an integrated financial market[10] is not art for art’s sake: it is a crucial part of the recipe for transforming Europe into the worl