The FCA has published Consultation Paper 16/19: Markets in Financial Instruments Directive II Implementation (CP16/19).
At the beginning of CP16/19 the FCA states the following:
“Following the result of the United Kingdom’s (UK) referendum on its membership of the European Union (EU) we published a statement on 24 June in which we said: ‘Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.’
The Markets in Financial Instruments Directive (MiFID II) is in the category of legislation that is still to come into effect. It is due to apply from 3 January 2018, so both firms and we need to continue with implementation plans.”
CP16/19 follows on from the FCA’s December 2015 consultation on MiFID II (Consultation Paper 15/43: Markets in Financial Instruments Directive II Implementation – Consultation Paper 1 (CP15/43)).
In CP16/19 the FCA seeks views on proposed changes to the Handbook in the following areas:
- commodity derivatives – the FCA proposes a new section of the Market Conduct Sourcebook to set out guidance and directions on MiFID II’s regime of position limits, position management and position reporting for commodity derivatives contracts. Position limits will be set in due course;
- supervision – the FCA proposes to make certain changes to the Supervision Manual to cover three key issues related to MiFID II. First, to make clear that firms need to notify the regulator of a breach of directly applicable regulations under MiFID II or implementing regulations introduced by HM Treasury, and to ensure information given to it in accordance with any such requirement is accurate and complete. Second, to introduce transitional provisions to deal with the revocation of the MiFID implementing regulation. Third, to update aspects of the passporting provisions;
- prudential standards – the FCA proposes changes to its prudential sourcebooks to reflect MiFID II’s introduction of the new investment service of operating an organised trading facility and the abolition of the exemption for a local firm;
- senior management arrangements, systems and controls (SYSC) – the FCA sets out the changes it proposes to make to the SYSC sourcebook to implement the following provisions of MiFID II: Article 9 (management body), Article 23 (conflicts of interest) and Article 16 (organisational requirements). The FCA also set out its proposed approach to how the management body and organisational requirements will apply to branches of non-EU firms and firms exempt under Article 3 of MiFID II;
- remuneration requirements for sales staff – the FCA sets out proposals to implement Article 24(10) MiFID II (and its implementing measures in Article 27 of the MiFID II implementing regulation), remuneration of sales staff. The FCA proposes to introduce a new SYSC 19F covering remuneration and performance management of sales staff, taking into account the responses to chapter 7 of Discussion Paper 15/3: Developing our approach to implementing MiFID II conduct business and organisational requirements;
- whistleblowing – the FCA notes that there are provisions in several EU Directives which deal with the protection of whistleblowers. The regulator proposes a new section of SYSC 18 (SYSC 18.6) to transpose the whistleblowing requirements in Article 73(2) of MiFID II for investment firms and branches of third-country firms. The FCA will also signpost whistleblowing requirements in other pieces of European legislation;
- client asset sourcebook (CASS) – the FCA proposes to transpose the new MiFID II requirements not already implemented in CASS through ‘intelligent copy out’ and apply all new MiIFD II requirements not implemented in CASS to all designated investment business, including non-MiFID business;
- complaints handling – the FCA proposes to copy out directly the requirements in MiFID II into Dispute Resolution: Complaints sourcebook, and create a new section which will contain all the complaints handling requirements for MiFID complaints; and
- fees manual – the FCA proposes the initial and on-going costs for firms who wish to apply to operate an over-the-counter or vary their permission to do so, or to operate a multilateral trading facility, and the onboarding fee for firms who connect to our market data processor.
The deadline for comments on CP16/19 is 28 October 2016.
The FCA will publish a third consultation paper on MiFID II implementation that will include changes to the Conduct of Business sourcebook, material on product governance and certain changes to the Perimeter Guidance Manual.
The FCA had previously indicated that it hoped to publish a Policy Statement on the matters covered by CP15/43 in the first half of 2016. However, the regulator now states in CP16/19 that it is now likely that it will publish a single policy statement covering all aspects of implementation in 2017.
View Second FCA consultation on UK implementation of MiFID, 29 July 2016