HM Treasury has published a consultation paper concerning the transposition of the Markets in Financial Instruments Directive (recast) (MiFID II).
MiFID II will be transposed in the UK primarily through the architecture of the Financial Services and Markets Act 2000 (FSMA) in the same way as MiFID was. This will involve a combination of secondary legislation and FCA rules. However, MiFID II, unlike MiFID, imposes some obligations on market participants who will be neither authorised persons, nor recognised investment exchanges. Specific provisions will be required for these persons as they do not readily fall into the existing FSMA structure and the FSMA does not grant the FCA powers to make rules in respect of such persons. In this respect, the primary intention of the consultation document is to set out the technical drafting of the secondary legislation required to implement MiFID II and invite comment and feedback.
The consultation paper contains four draft statutory instruments being:
- the draft Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2016. The draft instrument: (i) designates the FCA, PRA and the Bank of England (BoE) as competent authorities for the purposes of MiFID II and the Markets in Financial Instruments Regulation (MiFIR) – the FCA will be principally responsible for the supervision of compliance with MiFID II and MiFIR, but it affects the organisational requirements of a number of banks and all of the major investment firms supervised by the PRA and touches central counterparties who are authorised and supervised by the BoE; (ii) provides for the exercise of the optional exemptions in Article 3(1)(a) to (c) of MiFID II; (iii) creates the position limit regime; (iv) imposes obligations on certain persons who do not hold Part 4A FSMA authorisation in relation to algorithmic trading, provision of direct electronic access services, acting as a general clearing member and the synchronisation of business clocks; (iv) amends FSMA provisions as required as a consequence of the wider transposition; (v) amends the Financial Services and Markets Act 2000 (Recognition Requirements) Regulations 2001; and (vi) makes consequential amendments to other statutory instruments made under FSMA;
- the draft Financial Services and Markets Act 2000 (Data Reporting Services) Regulations 2016. This draft instrument provides for the UK regime which requires persons operating data reporting services as set out in Section D of Annex I to MiFID II to be regulated. It requires persons providing such services to be authorised by the FCA and imposes obligations on them. It also provides for the administration and enforcement of the regime, which will be undertaken by the FCA;
- the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2016. The draft instrument amends the FSMA (Regulated Activities) Order 2001 (RAO) to: (i) provide that operating an organised trading facility is a regulated activity; (ii) provide that structured deposits are within the scope of certain specified activities; (iii) make emission allowances a specified investment; (iv) make options and futures specified investments in certain circumstances involving alternative investment fund managers; (v) transpose the Article 2 MiFID II exemptions; and (vi) make consequential amendments to the RAO; and
- the draft Financial Services and Markets Act 2000 (Qualifying EU Provisions) (Amendment) Order 2016. This draft instrument amends the Financial Services and Markets Act 2000 (Qualifying EU Provisions) Order 2013 to make MiFIR a qualifying EU provision for various parts of FSMA to ensure that the FCA and PRA have the appropriate powers to perform their roles arising from MiFIR.
The deadline for comments on the consultation paper is 18 June 2015. It is expected that the draft legislation will be made in 2016.
View Transposition of the Markets in Financial Instruments Directive II, 27 March 2015