The PRA has issued its first consultation paper on the implementation of the Markets in Financial Instruments Directive II (MiFID II) (Consultation Paper 9/16: Implementation of MiFID II: Part 1 (CP9/16)).
What does the PRA consultation cover?
In CP9/16 the PRA sets out policy proposals in relation to the extension of scope and harmonisation of the passporting regime, which include the following:
- when updating passporting details firms will need to use the appropriate notification form for which ESMA has submitted draft forms for endorsement by the Commission – the PRA proposes to delete its MiFID notification forms and insert a link in its Rulebook to the EU notification forms on the Commission’s website;
- a firm’s existing MiFID passport will remain valid and unchanged, however firms will need to assess whether they wish to include these new activities and/or investment types;
- MiFID II amends the passporting regime by extending the range of investment services and activities that can be passported to include the operation of the OTF and adding emissions allowances as a new category of financial instruments; and
- interaction with CRD IV: (i) PRA proposes to extend the current declaration form that is used for passport notifications under the CRD IV to MiFID II passport notifications (ii) for firms wishing to passport MiFID activities under their CRD IV passport the PRA will continue to process these notifications as it currently does using forms produced by the EBA.
The PRA also sets out policy proposals in relation to systems and controls for firms that undertake algorithmic trading and provide direct electronic access to trading venues, which include the following:
- PRA proposes to create a new Algorithmic Trading Part of the PRA Rulebook in which rules are related to but do not replace the existing rules on firms’ systems and controls;
- notification requirement under Article 17(2) MiFID II is being consulted on by the FCA and the PRA proposes the FCA to be the appropriate authority to transpose this requirement into UK law;
- firms engaging in algorithmic trading should ensure that their trading systems: (i) are resilient and have sufficient capacity; (ii) are subject to appropriate trading thresholds and limits; and (iii) prevent the sending of erroneous orders or contribute to a disorderly market;
- additionally, firms should have business continuity arrangements in place in the event of a failure and these arrangements should be fully tested and monitored. The PRA has also proposed record keeping requirements for firms engaging in high frequency trading; and
- direct electronic access: PRA sets out proposals to transpose requirements in article 17(5) MiFID II. The proposals require firms to put in place systems and controls to review the suitability of clients using this service, prevent clients from exceeding appropriate pre-set trading and credit thresholds, and prevent trading by clients which may create risks to the firm.
The PRA intends to publish a further CP in due course to cover the remaining areas of MiFID II for which PRA Handbook amendments are required.
The deadline for comments is 27 May 2016.
View PRA’s first consultation on MiFID II implementation, 24 March 2016