Richard North, 01/05/2005  

It will not be the first time that we have called EU law "mad". Booker and I even wrote a book once, called "The Mad Officials". But now we have an EU law which is officially mad, namely the Market Abuse Directive (MAD), 2004/72/EC.

According to the business section of The Sunday Telegraph, it really is mad – and the reason is not hard to see.

Due to be implemented in the summer by the Financial Services Authority (FSA), the regulations made under the directive will cost the City about £50m in legal and compliance costs – yet the regulator has concluded that the rules will bring no financial benefits whatsoever.

The directive sets out accepted market practices and rules for the definition of inside information in relation to derivatives on commodities, and requires the drawing up of lists of insiders, the notification of managers' transactions and the notification of suspicious transactions.

But a cost-benefit analysis of the policy by the FSA states that, although the regulations will cost the City tens of millions of pounds, they will bring zero benefits in return.

According to The Telegraph, an FSA consulation document reveals that the new rules will create one-off costs for intermediaries of £17m, and of between £21m and £34m for issuers of financial products. The total one-off costs are therefore between £38m and £51m. In addition, there will be annual costs of £260,000 for issuers of financial products and £104,000 of annual costs relating to new anti-money laundering measures.

Next to these sums, the document states that the new rules will bring: "No incremental change in benefits." An FSA spokeswoman said: "We already have a market abuse regime here in Britain."

However, the FSA has no choice but to introduce the EU rules, despite its cost-benefit analysis. "We will be implementing a directive," said the spokeswoman.

Interestingly, The Telegraph reports that the FSA's consultation document appears on its website (currently unavailable). The abbreviated reference to the Market Abuse Directive is "eu-mad". It really is beyond parody.

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