UK: UK Financial Conduct Authority Publishes Fourth Consultation On Implementing MiFID II

On December 16, 2016, the FCA published its fourth consultation paper on the implementation of the revised MiFID in the UK. MiFID II regulates retail and wholesale investment business. The consultation covers technical matters that were outside the scope of previous consultations and includes proposed changes to the FCA Handbook on specialist regimes, tied agents, market data, SME growth markets and transitional fees.

The FCA is proposing to update section 18 of the Conduct of Business Sourcebook of the Handbook by updating cross-references to correspond to the FCA's proposed changes to other sections of COBS. COBS 18 contains a number of tailored conduct regimes covering both MiFID and non-MiFID business, for specialist types of designated investment business.

The FCA is proposing amendments to Handbook rules on appointed representatives to reflect the technical changes in MiFID II and the tied agents regime. The proposals are particularly relevant to firms undertaking MiFID or equivalent third country business. Under MiFID II, all Member States will be required to maintain tied agents regimes, whereas they currently have an option as to whether to do so. As a result, the FCA is seeking to clarify the territorial application of the appointed representative rules. MiFID II also changes the scope of permitted activities relating to structured products for tied agents and the FCA is proposing to introduce new definitions of "MiFID optional exemption AR" and "structured deposit AR." The new terms will define the new populations of authorized representatives to which MiFID tied agent requirements will also apply.

On the topic of market data, existing provisions of the Market Conduct Sourcebook outline the FCA's expectation that Data Reporting Service Providers should have an open, constructive and co-operative relationship with the FCA. The FCA is proposing minor changes to some of the proposed provisions relating to DRSPs, in particular, by requiring a DRSP to provide an annual notification within three months of the anniversary of its first authorization instead of within 10 business days. The FCA is also proposing to amend its guidance on the reporting obligations of trading venues by clarifying that trading venues can use ARMs to report transaction reports to it and that a group of investment firms may aggregate their reporting via an internal hub, provided the hub uses an Approved Reporting Mechanism or is an ARM.

MiFID II will introduce a new sub-category of Multilateral Trading Facility called "SME growth markets." The FCA is proposing to update the Handbook to include provisions on SME growth markets, including how firms can apply to be registered as an SME growth market.

There are also a number of miscellaneous changes to various modules of the Handbook being proposed by the FCA, including changes to the Perimeter Guidance that build on previous consultations on forward foreign exchange, commodity derivatives and new exemptions for professional firms and commodity derivatives trading. Other proposed changes relate to the territorial scope of rules on remuneration and training and competency. The FCA is proposing, among other things, that a UK branch of an incoming EEA firm (unless it is a UCITS investment firm or an AIFM investment firm) will be subject to the 'Remuneration and performance management of sales staff' chapter of the Handbook.

The FCA is proposing a transitional rule to account for the period between January 30, 2017, which is when the FCA will begin accepting applications for authorization under MiFID II, and the point at which legislation will allow the FCA to collect fees for those applications.

The FCA is seeking comments by February 17, 2017, except for the proposals on fees, for which comments are due by January 16, 2017. Despite being its final consultation paper on the implementation of MiFID II, the FCA will consult on any further issues as necessary in its quarterly consultation papers. Member States are required to finalize their laws and regulations implementing MiFID II by July 3, 2017. MiFID II will apply from January 3, 2018. The FCA intends to publish its final rules and Policy Statement on the issues raised in this consultation in June 2017. That Policy Statement will also cover the issues consulted on in the FCA's second and third consultation papers. The Policy Statement for the topics covered in the first consultation paper is expected in March 2017.

The consultation paper also contains the FCA's feedback on the changes to Form A, which is the application form used to register individuals to perform controlled functions under the approved persons regime. The FCA is proceeding with its proposed new Form A as consulted on in its third consultation paper for firms seeking authorization under MiFID to submit information for the approval of individuals who will be members of the management body or effectively direct the business of the MiFID firm. The name of the form will be changed to "Long Form A—UK and Overseas Firms (not Incoming EEA) for MiFID 2 authorisation applications." Firms will be able to use this form starting from January 30, 2017. However, applications using the form will be treated as draft applications until the Policy Statement and final rules are published.

The FCA's first consultation paper, published on December 15, 2015, related to issues associated with the FCA's regulation of the secondary trading of financial instruments. The second consultation paper covered commodity derivatives, operating an Organised Trading Facility and requirements for senior management of investment firms. The third consultation was on conduct of business requirements (covering topics such as inducements, research, client categorization, disclosure requirements, independence, dealing and managing, suitability, appropriateness and investment research), product governance, supervision and authorization, knowledge and competence requirements and perimeter guidance.

The consultation paper is available at: https://www.fca.org.uk/publication/consultation/cp16-43.pdf.

The third consultation paper is available at: http://finreg.shearman.com/uk-financial-conduct-authority-consults-further-o, the second consultation paper is available at: http://finreg.shearman.com/uk-regulator-publishes-second-consultation-paper- and the first consultation paper is available at: http://finreg.shearman.com/uk-regulator-consults-on-implementing-the-revised

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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