United Kingdom (and EU regulation)

FCA publishes fifth MiFID II consultation paper

By Hannah Meakin (UK) and Imogen Garner (UK) on March 31, 2017 Posted in Regulation and compliance, United Kingdom

The FCA has published its latest MiFID II consultation, Consultation Paper 17/8: Markets in Financial Instruments Directive II Implementation – Consultation Paper V (CP17/8).

CP17/8 has four chapters comprising:

chapter 1 – overview;
chapter 2 – specialist regimes – occupational pension scheme (OPS) firms. Chapter 18 of the Conduct of Business sourcebook (COBS) contains a range of tailored conduct regimes for various types of specialist designated investment business, covering both MiFID and non-MiFID business. COBS 18.8 sets out the requirements for OPS firms. OPS firms are outside the scope of MiFID and this remains the position under MiFID II. In 2007 the FSA applied its new COBS rules, many of which derived from MiFID, to OPS firms, including best execution and rules on the use of dealing commission. When the FSA introduced new taping rules in 2008, they also covered OPS firms. MiFID II enhances certain aspects of the COBS rules, including best execution, and introduces new rules on inducements and research (replacing the FCA’s dealing commission regime), telephone recording (taping) and record keeping. The FCA proposes to apply the MiFID II requirements relating to: (i) inducements and, as part of this, research; (ii) best execution; and (iii) taping, to OPS firms;
chapter 3 – Decision Procedure and Penalties Manual (DEPP) and Enforcement Guide (EG). The FCA notes that the majority of the enforcement powers required by MiFID II are already available to it. The main exception to this is the new power to require investment firms, credit institutions and recognised investment exchanges to remove persons from their management boards, as well as powers over data reporting service providers (DRSPs) and certain other entities subject to the requirements under the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017. The FCA has identified certain areas requiring changes to DEPP and EG. These include: (i) the regime relating to position limits and other requirements applicable to certain authorised and unauthorised firms; (ii); new powers to require the removal of a person from a management board; and (iii) the new regime for DRSPs; and
chapter 4 – consequential changes to the FCA Handbook and reporting financial instrument reference data and positions in commodity derivatives. The FCA proposes certain consequential amendments to the Handbook based in proposals in CP16/29 (including some amendments to the Glossary), and guidance on the use of third parties where firms are required to send the regulator financial instrument reference data or commodity derivative position reports. In particular, the changing scope of MiFID II in relation to emission allowances means that the FCA is proposing an amendment to the definition of ‘auction regulation bidding’ to bring this into line with the Directive, notably to reflect the fact that a MiFID investment firm will be subject to the Directive when bidding in a spot emission allowance. As such the scope of ‘auction regulation bidding’ (a subset of the activity of bidding in emissions auctions) will be narrower as of MiFID II application.

The deadline for comments on chapters 3 and 4 of CP17/8 is 12 May 2017. The deadline for comments on chapter 2 is 23 June 2017. The FCA will set out its proposed approach to the final rules for chapters 3 and 4 in its second Policy Statement which will be published in June 2017. The FCA will publish final rules on the issues in chapter 2, other than in regard to taping, separately.

View CP17/8: Markets in Financial Instruments Directive II Implementation – Consultation Paper V, 31 March 2017