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Mifid II poses ‘genuine danger’ to banking
20 May 2014
Banks may be force to scale back OTC derivative activity, just like RBS, says Rule Financial
Banks struggling to come to terms with current regulations
face an even tougher future with a potentially "draconian"
Markets in Financial Instruments Directive (Mifid) II on the
horizon, according to Rule Financial's Jeremy Taylor.
The upcoming Mifid II technical standards could lead
to banks pulling out of the OTC derivatives market,
said Taylor, who is a specialist in derivatives and operational
processing at the consultancy.
He made the comments following the Royal Bank of Scotland's
decision to scale back on its OTC derivative activity, citing
regulatory costs as a factor.
"There is a concern that this will result in a
draconian Mifid II that will stifle growth in the banking
"There is a genuine danger that this could place further
pressure on the OTC derivative markets in Europe for
participants already operating under extreme balance-sheet
pressure, low margins and reduced demand from customers for
products to hedge risk.
Taylor pointed out that Mifid II has become embroiled in
the heat of the forthcoming European parliamentary elections as
"it is seen as an opportunity for candidates with an
anti-banking agenda to increase support for their election
"Banks have already invested millions in preparation
for Emir, if the regulators move the goalposts once more, they
might have to pull the plug on derivative desks that are too
expensive to operate," he added.
The European Securities and Markets Authority (Esma) is
expected to consult on the technical standards of Mifid II
in Q2 2014.