United Kingdom (and EU regulation)

MiFID II: Response to CP9/16 – PS29/16

By Simon Lovegrove (UK), Hannah Meakin (UK) and Conor Foley (UK) on October 27, 2016 Posted in Regulation and compliance, United Kingdom

The PRA has published Policy Statement 29/16: MiFID II: Response to CP9/16 (PS29/16).

PS29/16 sets out final PRA rules that transpose MiFID II in relation to:

the extension of scope and harmonisation of the MiFID II passporting regime in the Passporting Part of the PRA Rulebook; and
systems and controls for firms who undertake algorithmic trading and provide direct electronic access to trading venues in the new Algorithmic Trading Part of the PRA Rulebook.

The PRA also provides feedback to the responses received to Consultation Paper 9/16: Implementation of MiFID II: Part 1 (CP9/16).

The PRA states that it received no responses to the changes proposed to the passporting regime. The final rules are therefore unchanged from those consulted on in CP9/16 apart from minor clarifying amendments. In addition, a definition of ‘tied agent’ has been added.

The responses the PRA received on algorithmic trading focussed on the following issues:

scope of the proposed rules. The PRA intends to maintain the scope of the algorithmic trading rules as set out in CP9/16. However, it also intends to consult in due course on algorithmic trading rules in relation to the UK branches of third country PRA-authorised firms;
record keeping requirements on firms engaging in algorithmic trading. In CP9/16 the PRA proposed detailed record keeping requirements on firms that engage in high frequency algorithmic trading. The PRA has removed these requirements from its rules on the basis that it is not necessary for prudential purposes to require the maintenance of these records in parallel to the corresponding FCA requirements. However, the PRA has also concluded that it is appropriate to provide greater granularity of the records that should be maintained as regards the testing of firms’ systems. CP9/16 contained a high level requirement for the firm to maintain a record of the “details of the testing of the firm’s systems”. This requirement is now broken down into two rules – Algorithmic Trading 2.3(4) for the methodological aspects of the test performed, and 2.3(5) for the results of, conclusions drawn from, and reactions to the tests. Finally, MiFID II states that Member State competent authorities may, at their discretion, ask for any information that is relevant to a firm’s algorithmic trading activity. However, MiFID II does not provide a detailed list of this relevant information. The PRA notes this and will consult separately on what constitutes ‘further relevant information’ for these purposes; and
requirements on firms providing direct electronic access. The PRA has amended Algorithmic Trading 2.4(3) to more closely align with the wording of Article 17(5) of MiFID II, by referring to ‘appropriate’ systems and controls.

The PRA states that it will keep its final policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the EU take effect.

View MiFID II: Response to CP9/16 – PS29/16, 27 October 2016