MiFID II / MiFIR update - UK

Hannah Meakin: Hello and welcome to the latest video in our MiFID II Academy series.

What we wanted to do today is give you an update on implementation of MiFID II in some of the European countries in which we have an office.

So we will start off with the UK. And for that purpose it’s over to Imogen.

Imogen Garner: Thanks Hannah.

So in terms of papers that have come out of the FCA here in the UK, there was its fourth consultation paper which we saw in December last year. That dealt with tied agents and also specialist regimes under the conduct of business sourcebook.

On 31 March [2017] we had its [the FCA’s] fifth consultation paper that dealt with, primarily, two things. The first is the position of OPS [occupational pension scheme] firms and for those firms under current MiFID, some aspects of the standards that apply today have been extended from MiFID to those firms, that is BestEx and inducements.

Under MiFID II, the MiFID II standards under BestEx, inducements and also taping are going to be extended to OPS firms. So if you want to respond to that part of the consultation paper you have got until the 23 June [2017]. And then we shall see the FCA’s feedback on it a little bit later this year, albeit not in the policy statement that we are expecting in June [2017].

The policy statement that we are expecting in June should have most of the feedback on other aspects of MiFID II related conduct of business, including the other element that was consulted on in that fifth consultation paper and that is changes to the FCA’s DEPP [Decision Procedure and Penalties] manual and it’s Enforcement Guide. And those changes really relate to the position limits regime, the regime for data reporting service providers and also some of the changes that might need to be made to reflect the FCA’s new power to require firms to remove particular individuals from their management body.

Hannah Meakin: The other paper that the FCA has recently published is a policy statement setting out the draft final changes to certain parts of the FCA rules in relation to some of the issues that it consulted on last year, in particular the issues relating to markets provisions in MiFID II and some of the systems and controls arrangements. Those rules are still in final draft form and won’t actually be completely finalised until the second policy statement that the FCA is due to publish in June later this year, as Imogen mentioned and at that point, hopefully all of the changes to the FCA rules will be published in their final form.  However, that said, we are not expecting any particular changes to the draft final rules that have been published already.

One thing to just note is that in the draft final rules that have been published to date, the FCA hasn’t included the changes that it consulted on in relation to the perimeter guidance and I think that is because there are various changes, or various issues being discussed in the ESMA questions and answers which are relevant to some of the areas that the FCA was discussing and so that will need to update that perimeter guidance to reflect those ESMA Q&As.

The other thing to just mention before we move onto the PRA is the FCA’s authorisations and notifications guide that it published earlier this year, this is a really useful document because it sets out the FCA’s expectations about how firms that need to make applications for new authorisations or variations of their existing permissions will need to do so and in particular it sets out the key date of 3 July this year which is really the deadline for firms needing to make these applications if they want to be sure to get their new authorisations or permissions in place in time for 3 January 2018.

Imogen Garner: So in terms of publications that have come out of the PRA we’ve seen two key policy statements recently. One of them was published in October and that deals with the position of firms who do algo trading as well as passporting matters and then there was their second policy statement which we saw in April. That addresses, first of all, implementation of various provisions relating to the management body and organisational requirements but also deals with the position of firms who are going to need to change their permissions to become an OTF operator or to deal with emissions allowances or structured deposits. Hannah as you have just mentioned, in relation to variations of permission these will need to be submitted to the FCA by 3 July but for firms that already have advising, arranging, dealing as agent and managing permissions, they want to extend those to do those activities in relation to structured deposits.  What the policy statement says is that they will be able to do that by means of a notification rather than a variation of permission application.

Hannah Meakin: HM Treasury has recently published a series of draft statutory instruments which are doing two things. First of all they are amending existing UK legislation which needs to change in order to implement MiFID II. So in particular our Regulated Activities Order which sets out the activities for which you need authorisation  from the FCA and the PRA. And secondly to supplement some of the areas where we previously haven’t had UK legislation. So in particular in relation to data reporting service providers and position limits. The intention is that that draft legislation will be finalised by the middle of the year in order that the rest of the MiFID II implementation can go ahead and in particular that firms will be able to finalise their applications to the FCA and the PRA.  One of the key points in relation to what HM Treasury has confirmed is in relation to the overseas person regime so in particular in the UK we will be keeping the overseas person exclusion which is currently in place and not implementing the MiFID II provisions in Article 39 in relation to branches of European firms.