The Markets in Financial Instruments Directive (MiFID) comes into effect today to replace the existing Investment Services Directive, but legal experts have warned that many UK firms are not ready.

MiFID is a major part of the European Commission's Financial Services Action Plan designed to help integrate financial markets across the 30 member states of the European Economic Area.

The Commission has said that, although the timetable has been ambitious, it has been looking forward to the onset of this landmark law which will play a central role in creating a robust, common regulatory framework for Europe's securities markets.

"MiFID is a ground-breaking piece of legislation which will transform the landscape for the trading of securities, and introduce much needed competition and efficiency," said Charlie McCreevy, Internal Market Commissioner at the European Commission.

"The cost of capital should go down over time, which will have major benefits for the European economy, and investors will gain in terms of greater choice and stronger protection.

"I would like to urge those member states which have not transposed to hurry up as such lack of action will damage their own firms."

However, many European companies have dragged their heels when it comes to insuring compliance with the new regulations.

"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," said Kit Burden, technology and sourcing partner at DLA Piper.

"However, in many cases little has been done. Perhaps this is because previous 'big scares' for IT investment, such as Y2K, came to nothing.

"But it seems that 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."

Burden warned that firms which continue to delay or ignore their responsibilities under the new MiFID requirements may find themselves in even deeper trouble down the line from vendors and contractors.

"The focus of MiFID has been on ensuring technical compliance from an IT and regulatory perspective, but 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," said the lawyer.

"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 which will be well aware of their strong bargaining positions."