The FCA has published Policy Statement 17/5: Markets in Financial Instruments Directive II Implementation – Policy Statement I (PS17/5).

In PS17/5 the FCA predominantly covers issues it consulted on in Consultation Paper 15/43 (Markets in Financial Instruments Directive II Implementation – CP I) (CP15/43) (where the regulator consulted mostly on markets issues) and Consultation Paper 16/19 (Markets in Financial Instruments Directive II Implementation – CP II) (CP16/19) (where the main issues the regulator consulted on were systems and controls, client assets and commodity position limits). Of the items in these Consultation Papers, the FCA does not cover in PS17/5 client assets or perimeter guidance. However, the FCA does cover a small number of issues it consulted on in Consultation Paper 16/29 (Markets in Financial Instruments Directive II Implementation – CP III) (CP16/29) and Consultation Paper 16/43 (Markets in Financial Instruments Directive II Implementation – CP IV) (CP16/43) where these are closely related to the material in CP15/43 and CP16/19.  The FCA also provides an update on its thinking on its proposals for the recording of telephone conversations of retail advisors exempt from MiFID II, covered in CP16/29.

In summary:

  • Multilateral systems – in CP15/43 the FCA consulted on perimeter guidance on a multilateral system, where it expressed the view that the activities that will be regulated as a trading venue under MiFID II are broader than under MiFID. All of the final perimeter guidance will be in the next FCA Policy Statement. On the specific issue of a multilateral system, the FCA reports that the issue is being considered by the European Securities and Markets Authority (ESMA). The FCA will decide in light of interpretative guidance from ESMA whether it will provide its own perimeter guidance;
  • Post-trade transparency deferrals – in CP15/43 the FCA consulted on allowing trading venues to use the post-trade deferrals which Member State national competent authorities (NCAs) are allowed to provide under MiFID II. The FCA will allow venues to use the maximum permitted deferrals. NCAs’ approach to the use of deferrals will not be harmonised across the EU because of the national discretion provided in MiFIR, but details of the regime in each Member State will be published by ESMA;
  • Transaction reporting and collective portfolio managers and pension funds – in CP15/43 the FCA proposed that transaction reporting rules would only apply to firms required to transaction report under MiFID II. This would mean the FCA removing its current requirement for collective portfolio managers and pension funds to transaction report because it did not think the benefits of requiring them to report transactions on the MiFID II basis would outweigh the costs. This remains the FCA’s view and it will not require them to report transactions under MiFID II;
  • Transaction reporting and third parties – respondents to CP15/43 raised questions about the use by investment firms of third parties to provide transaction reports to Approved Reporting Mechanisms (ARMs) and the use of ARMs by trading venues. This led to the FCA proposing some guidance on these issues in CP16/43. The FCA reports that the guidance was well received and will be included in its final rules. The FCA also provides guidance that investment firms providing transaction reports to it directly can use third parties to assist them but must submit the reports to the regulator themselves;
  • Handbook guides – in CP15/43 and CP16/19 the FCA published Handbook guides to the implementation of MiFID II covering the markets provisions and its systems and controls requirements. The FCA reports that these guides were well received. The FCA will go ahead with these guides when it makes the rules in the second Policy Statement. The FCA will clarify the status of the guides as guidance, and in due course provide a link to the eventual UK MiFID II transposition table;
  • Taping – in CP16/29 the FCA consulted on rules regarding the recording of telephone conversations and electronic communications (taping). In addition to implementing the specific MiFID II requirements the FCA proposed requiring Article 3 retail financial advisers (RFAs) to tape. The FCA will include its taping rules in its June Policy Statement, but in order to provide early clarity to Article 3 RFAs the regulator sets out how its thinking on this issue has developed. In light of feedback the FCA intends to amend its approach such that Article 3 RFAs are required either to tape all relevant conversations or to keep a contemporaneous note of all relevant conversations. The FCA is considering the feedback it received on other aspects of its taping proposals; and
  • Asset management market study – in its November 2016 interim report on the asset management market study the FCA identified certain ways in which asset management services and products could work better for retail and institutional investors. The remedies that have been provisionally proposed have links to issues covered in MiFID II and the Packaged Retail and Insurance-based Investment Products Regulation. The FCA states that it will ensure that the final package of remedies is consistent with, and builds upon, both pieces of legislation.

The FCA states that it will publish a second Policy Statement on MiFID II implementation at the end of June 2017 at which point it will make all of its final rules.

View PS17/5: Markets in Financial Instruments Directive II Implementation – Policy Statement I, 31 March 2017