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MiFID II FCA Updates

21st October 2015

The Markets in Financial Instruments Directive II (MiFID II) is set to come into effect for all investment firms on 3rd January 2017 however the FCA are still in the middle of consulting upon their policy choices with regards to the changes the directive will bring to the industry.

Whilst the regulator isn’t expected to issue their finalised rules until mid-2016, yesterday both David Geale, (Director of Policy) and David Lawton, (Director of Markets Policy and International) of the FCA each gave a speech in update at the FCA MiFID II Conference in London.

In his role as Director of Markets Policy and International at the FCA, David Lawton provided the conference with an overview of the path to MiFID II’s implementation in a speech entitled ‘The Road to MiFID’ whilst his colleague, Mr Geale, focussed more specifically upon Investor Protection within the Retail market under the new directive.

Summary: The Road to MiFID

With the deadline for MiFID II implementation set as 3rd January 2017, Mr Lawton spoke about both the UK and EU processes and anticipated timelines for finalising the new rules.

Anticipated timings:

Particularly, Mr Lawton noted that ESMA - the European Securities and Markets Authority - recently published draft technical standards and that it could take up to three months for the European Commission to approve them before they then went in front of the European Parliament and the Council of the EU, which could potentially also take a number of months. Assuming that during the approval process there were no changes to be made, then the technical standards could be finalised in the first quarter of next year.

In addition, at the end of last year in December, ESMA submitted to the European Commission its advice on the Delegated Acts, however the Commission is not yet at a point where it can finalise and publish the Delegated Acts. Whilst it was initially anticipated these would be published over the summer, it now seems more likely that they will be published in the last month or so of this year.

With these timing factors in mind, and due to the work to be undertaken by the FCA and HM Treasury being very heavily dependent upon seeing the near final EU rules, Mr Lawton confirmed that the FCA expects to split its current MiFID consultation efforts into two separate papers with one to be released before the end of the year in December and the other early next year in 2016.

MiFID II FCA Authorisation Update:

The new directive will require certain firms to be registered for their status or activities for the first time such as firms undertaking speculative trading in commodity derivatives, organised trading facilities (OTFs) and firms utilising high-frequency trading methods.

Whilst for some this will simply mean applying to the regulator for new permissions, for others, it will mean having to apply to the FCA for authorisation for the first time.

As such, Mr Lawton also outlined the FCA’s expectations with regards to their timeline for authorisations with the regulator’s current intention to start making the new applications forms available early next year so that they can start accepting draft applications from April.

Update to MiFID Schedule - Anticipated MiFID Timeline:

MiFID II and Investor Protection:

Speaking at the MiFID II Conference yesterday David Geale, Director of Policy (Strategy and Competition Division) at the FCA gave a speech entitled ‘Investor Protection under MiFID II’. This  highlighted the impact MiFID II would have for the Retail Markets and giving focus to the following key issues:

 Product Governance

 Suitability of advice and due diligence

 Inducements

 Research

 Remuneration, performance assessment and reward

Mr Geale additionally put the directive into a ‘current UK context’, providing additional detail on how it will affect the wider retail investment landscape in the UK as well as detailing other top conduct issues to be addressed such as Appropriateness, Costs and Charges and Independence.

Due Diligence

When discussing due diligence in his speech, Mr Geale advised that the regulator is currently in the middle of a thematic review project to discover and understand current practice and potentially provide both good and poor practice examples with the aim of improving standards within the industry.

Whilst the types of regulated firms included within this discovery project was not disclosed, Mr Geale did advise that the regulator has not only been looking into the roles that different players have within the area of due diligence, (including unregulated third-party providers of ‘due diligence solutions’, advisers and product providers) but also assessing how firms measure up to current suitability rules.

No doubt we will hear further from the FCA on this topic once the thematic study has been concluded, yet in context of MiFID II, Mr Geale informed the FCA sees this work as particularly important because the new legislation is due to introduce and establish more specific requirements for firms to conduct due diligence and ensure that recommended products are actually suitable for their clients.

To read the full speech, click here.

MiFID II: What next for Firms

Considering the new rules and the scale of expected changes, affected firms should all be in the early stages of planning for the new rules as best as possible based upon what is known at present, and what the new rules might mean for your firm and business lines.

As noted in his MiFID II speech, David Geale, Director of Policy at the FCA, advised that the regulator is looking to “challenge firms about whether they have in train the changes needed to ensure their future compliance.”

If your firm is currently reviewing how MiFID II will impact your business and require support or assistance in planning for MiFID II implementation in 2017, please contact our experienced regulatory & compliance support team, who would be happy to help.

Related Reading:

• MiFID II Overview
• Aug15 Update to MiFID II Taping Rules for Financial Advisers
• Complex Products & Appropriateness Testing under MiFID II

MiFID II Update on ‘The Road to MiFID’

Comment from the FCA:

“MiFID II will change the way European markets operate in future... From new transparency regimes for equity and, for the first time, non-equity trading, regulation of new entities… strengthened conduct of business requirements and disclosures, to caps on dark trading of equities and positions limits for commodity derivatives.”

David Lawson, FCA, ‘The Road to MiFID Speech’, FCA MiFID II Conference, 20 October 2015

Comment from the FCA:

“Firms will be required to have policies and procedures in place to ensure they understand the nature and features of the products they select for their clients, and they will be required to assess whether alternatives are available that would better meet their client’s objectives. This is a clear signal that advisers really need to understand the products they are recommending”

David Geale, Director of Policy, FCA - Speech ‘Investor Protection Under MiFID II’, FCA MiFID II Conference 20th October 2015