The Markets in Financial Instruments Directive (MiFID) comes into effect today, but a large number of European financial firms do not have the required record keeping measures in place and there is still more technology investment and innovation to come.

Research released by the JWG-IT group last month revealed that 63% of firms do not comply with MiFID’s Article 51, which requires firms to record information on how different stages of a transaction took place in order to prove best execution. The legislation also demands that these records be kept for five years after a financial transaction takes place. Customer records will also need to be retained for the lifetime of the relationship with the client.

JWG-IT studied 70 financial institutions in 10 jurisdictions, and found "widespread gaps" in the current infrastructure.

“For the ‘average’ firm, MiFID will require a significant upgrade, not only in the way that records are stored and retrieved, but also how they are captured, linked and accessed at the required time,” said the report.

Chris Pickles, manager of industry relations at BT Radianz, said firms should no longer be scrambling to implement technology, as MiFID was now in effect. But he said the rules would continue to inspire technology investment and development over the next few years, and would affect the European economic landscape for years to come.

He cited the examples of new multi-lateral trading facilities that will compete with traditional exchanges while relying on new technology, such as Boat, the rival trade reporting system backed by 20 investment banks that went live when the markets opened this morning. Turquoise, a similar consortium-led project, plans to launch in 2008, while Chi-X, a new trading system from broker Instinet, is also live.

Kit Burden, tech and sourcing partner at legal firm DLA Piper, said many financial institutions have been slow in implementing either the necessary project work to achieve technical compliance, or the relevant contractual reviews and negotiations to achieve legal compliance. "MiFID has been on the horizon for some time and everyone has known that substantial IT investment has been likely to be required in order to ensure compliance. However, in many cases little has been done."

Burden said that this could be because previous calls for heavy amounts of IT investment, for example Y2K, "came to nothing".

"In addition, although the focus of MiFID has been on ensuring technical compliance from an IT and regulatory perspective, MiFID also has much to say about expectations regarding the content of outsourcing agreements - which MiFID interprets very widely thereby encompassing many forms of IT services agreements. Significantly, MiFID seems to require even existing contracts to be brought into line with its provisions. This may well entail significant re-negotiations with suppliers who will likely be well aware of their strong bargaining positions," he added.