UK: FCA Publishes MiFID II Policy Statement and Consultation Paper (Investment Management Brief: 13 July 2017)

Last Updated: 13 July 2017
Article by David Heffron, Elizabeth Budd, Michael Lewis and Ian Warner

UK regulatory 

FCA publishes MiFID II policy statement and consultation paper

The FCA has published its final policy statement (Policy Statement II) PS 17/14 [03.07.17].  This includes final rules for implementing MiFID II. The Policy Statement covers conduct issues including research, inducements, client categorisation, best execution, appropriateness, taping, client assets and perimeter guidance.  It is of broad relevance to the market especially to consumers, investment managers and advisers.  The FCA also reminds firms to continue to prepare for 3 January 2018 when MiFID II applies and that those needing to apply for authorisation or variation of permission in light of changes MiFID II makes, must now do so immediately. For more on applications see here.   The FCA also issued its sixth set of implementing proposals for MiFID II: Consultation paper VI (CP17/19) [03.07.19]. This contains the FCA's proposals for bringing RIEs operating MTFs and OTFs into the FSCS – as MiFID II requires them to have an investor compensation scheme; changes to DEPP and EG; and consequential changes to the Prospectus rules and Glossary. The FCA asks for comments by 7 September 2017.

FCA publishes the FAMR Baseline Report

The FCA and HM Treasury published their Financial Advice Market Review (FAMR) baseline report [30.06.17]. They jointly launched FAMR in 2015 to look into how to generate affordable and accessible financial advice and guidance – for everyone.  The FAMR final report published in March 2016 included a recommendation for the FCA and HM Treasury to work on identifying a baseline and indicators for monitoring how the financial advice market develops. These should be tracked each year and the results published on the FCA's website.  The FCA and Treasury identified a range of indicators, including measures of consumers' use of advice and guidance ('demand side') and measures of its provision ('supply side') to provide a snapshot of the financial advice market and set a baseline. The indicators would act as the benchmark to measure the impact of FAMR against the 'success factors' in the final report. The success factors are:

·        good availability of affordable, high quality advice and guidance for consumers at all stages of their lives to access;

·        greater innovation in consumers' interests, encouraged by a flexible and well understood regulatory framework for advice;

·        variety of channels for consumers to access advice and guidance, including in the workplace, and appropriate flexibility in how consumers pay for advice; and

·        consumer engagement with their financial affairs and seeking the advice and guidance they  need.

The Baseline Report is underpinned by two pieces of consumer research: Qualitative research and Quantitative research. Quantitative consumer research will be available annually as will supply-side data from FCA reporting.  The FCA and HM Treasury plan to carry out the same research in two years' time in 2019 and compare the data sets generated, to see how the market is evolving.

The Retail Distribution Review's 2017 Post-Implementation Reviews will be combined with the 2019 post-FAMR review to give the market time to react to regulatory changes flowing from FAMR and MiFID II and minimise reporting by firms. The results will be published early in 2020.  Read more here.

FCA publishes its annual report

The FCA published its annual report and accounts for the year ended 31 March 2017 [05.07.17] looking back on significant work in 2016/17. The FCA also published [05.07.17] three other separate annual reports for 2016/17 on: Competition, Enforcement, Anti-Money Laundering and Diversity.  Their Annual Public Meeting at which the Annual Report and Accounts will be discussed is to be held on 18 July 2017. It is now fully booked but will be live-streamed.

FCA publishes prospectus rules instrument

The FCA has published its Prospectus Rules (Miscellaneous Amendments) Instruments 2017 (FCA 2017/40) [06.07.17]. It contains amendments to the Glossary and Prospectus Rules sourcebook, and comes into force on 20 July 2017.


EU regulatory 

Commission publishes PRIIPs communication

The Commission published a Communication [07.07.17] in the Official Journal containing Guidelines on the application of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation (Regulation (EU) No 1286/2014) (Regulation).  The objective of the Communication is to: "facilitate the implementation of, and the compliance with, [the] Regulation 1286/2014 by smoothing out potential interpretative divergences throughout the Union."  It does not contain or create new legal rules.  The Guidelines cover a range of areas including territorial application, running offers on 1 January 2018, offers that are closed by 31 December 2017, use of Key information Documents (KIDs) by UCITS, distribution channels, translations of KIDs, length of KIDs – and more.  The Commission's position is without prejudice to any interpretation the European Court of Justice gives to the Regulation.   

ESAs publish Q&A on the KID

The European Supervisory Authorities (ESAs) published [04.07.17] their first Q&As on the Key Information Document (KID) requirements for Packaged Retail and Insurance-based Investment Products (PRIIPs). More than 70 Q&A address a range of matters. These include: market risk assessment, methodology for assessing credit risk, summary risk indicator, performance scenarios, derivatives, costs calculation methodology among other costs requirements.

Regulation on money market funds published in the Official Journal

The Regulation on money market funds was published in the Official Journal of the European Union [30.06.17]. For further information on ESMA's consultation on the regulation please see here and for information on its adoption see here. The Regulation enters into force twenty days after its publication in the Official Journal and applies from 21 July 2018 with the exception of a small number of provisions which apply from 20 July 2017.

Prospectus regulation published in the Official Journal

The Regulation on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market repealing Directive 2003/71/EC has been published in the Official Journal of the European Union [30.06.17]. It enters into force 20 days after it is published in the Official Journal and applies from 21 July 2019 except for a small number of provisions that apply earlier on dates in 2017 and 2018.  The aim of the Regulation is to make it cheaper and easier for companies, especially smaller companies, to access capital.  It also aims to make the prospectus more accessible to investors. The Regulation requires the European Commission to adopt delegated acts on some areas within 18 months of the Regulation entering into force.  ESMA has now published [06.07.17] three consultation papers containing draft technical advice on the:

·        format and content of the prospectus (ESMA31-62-532);

·        content and format of the EU Growth Prospectus (ESMA31-62-649);

·        scrutiny and approval of the prospectus (ESMA31-62-650).

The consultations close on 28 September 2017.  ESMA is to deliver its technical advice to the European Commission by 31 March 2018.

To read more on the European Parliament's approval of the proposal for the new prospectus Regulation in April 2017 see here and on its adoption by the European Council [16.05.17] see here.

ESMA updates MAR Q&A

ESMA updated its Q&As on the Market Abuse Regulation (MAR) [06.07.17] with two new questions in the section on managers' transactions (section 7). They are:

·             if the announcement of the interim or year-end financial results determines the timing of the closed period in Article 19(11) MAR (Q7.2); and

·             whether, in the set of Q&A on closely associated persons, the phrase "the managerial responsibilities of which are discharged" in Article 3(1)(26)(d) of MAR is to be read in the same way as in the definition of a PDMR within an issuer in Article 3(1)(25) MAR (Q7.7).    

ESMA publishes Benchmarks Regulation Q&A

ESMA published [05.07.17] two Q&A on the Benchmarks Regulation. They relate to the transitional provisions under the Benchmarks Regulation as to which benchmarks supervised entities are to be permitted to use after 1 January 2018, because of transitional provisions applicable to EU index providers providing benchmarks on 30th June 2016 and those starting to do so between 1st July 2016 and 31st December 2017. The FCA welcomed the clarity given by the Q&A on the transitional provisions [07.07.17] and reminded firms its consultation on its proposed Handbook changes to align its rules with the Benchmarks Regulation is open until 22 August 2017.  Read more here.

EBA collecting data on proposed investment firm prudential framework

The European Banking Authority (EBA) has launched [06.07.17] its second round of data collecting in support of the response to the European Commission's Call for Evidence on the proposed prudential regulation framework for investment firms.  It is supplementary to the first data collection round begun on 15 July 2017 and the EBA's Discussion Paper [04.11.16] where the EBA consulted on its proposal for the prudential framework for investment firms.  The template is designed so firms that did not provide data in the first round may do so now and the EBA asks firms that did provide data previously to do so again, including repeating they previously provided.  Completed templates are to be returned to competent authorities by 3 August 2017.  The templates and instructions are addressed to firms currently within the scope of MiFID and which are expected to be in scope of MiFID II.


Financial crime

FCA publishes its Finalised Guidance on the AML treatment of PEPs

The FCA published finalised guidance [06.07.2017] on the way that financial services firms should treat their customers who are politically exposed persons (PEPs) to satisfy their anti-money laundering obligations (FG17/5). The FCA consulted, in March 2017, on guidance regarding PEPs under s. 333U of the Financial Services and Markets Act 2000 (FSMA). There is a duty in this section for the FCA to issue guidance on PEPs before regulations transposing the Fourth Anti-Money Laundering Directive or any subsequent EU measures come into force. Section 333U FSMA was not in force on 6th July 2017 and the FCA also had a duty under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (2017 Regulations) to issue guidance on the enhanced customer due diligence measures for PEPS. According to the 2017 Regulations, the FCA's duty under s. 333U FSMA does not apply if it is satisfied by guidance the FCA issues under the 2017 Regulations.  The FCA considers that by issuing guidance under the 2017 Regulations, they will have satisfied their duty under s.333U FSMA.  The FCA will not consult again on this guidance as the substance of it has already been consulted on. The EU is in the process of negotiating other amendments to the Fourth Anti-Money Laundering Directive so the final text to come from the EU my affect the FCA's Finalised Guidance.  The FCA published [July 2017] a summary of feedback they received on their consultation on the 2017 Regulations. For further information on the coming into force of the 2017 Regulations see  here.

FCA publishes MiFID II policy statement and consultation paper

The FCA has published its final policy statement (Policy Statement II) PS 17/14 [03.07.17].  This includes final rules for implementing MiFID II. The Policy Statement covers conduct issues including research, inducements, client categorisation, best execution, appropriateness, taping, client assets and perimeter guidance.  It is of broad relevance to the market especially to consumers, investment managers and advisers.  The FCA also reminds firms to continue to prepare for 3 January 2018 when MiFID II applies and that those needing to apply for authorisation or variation of permission in light of changes MiFID II makes, must now do so immediately. For more on applications see here.   The FCA also issued its sixth set of implementing proposals for MiFID II: Consultation paper VI (CP17/19) [03.07.19]. This contains the FCA's proposals for bringing RIEs operating MTFs and OTFs into the FSCS – as MiFID II requires them to have an investor compensation scheme; changes to DEPP and EG; and consequential changes to the Prospectus rules and Glossary. The FCA asks for comments by 7 September 2017.

FCA publishes the FAMR Baseline Report

The FCA and HM Treasury published their Financial Advice Market Review (FAMR) baseline report [30.06.17]. They jointly launched FAMR in 2015 to look into how to generate affordable and accessible financial advice and guidance – for everyone.  The FAMR final report published in March 2016 included a recommendation for the FCA and HM Treasury to work on identifying a baseline and indicators for monitoring how the financial advice market develops. These should be tracked each year and the results published on the FCA's website.  The FCA and Treasury identified a range of indicators, including measures of consumers' use of advice and guidance ('demand side') and measures of its provision ('supply side') to provide a snapshot of the financial advice market and set a baseline. The indicators would act as the benchmark to measure the impact of FAMR against the 'success factors' in the final report. The success factors are:

·        good availability of affordable, high quality advice and guidance for consumers at all stages of their lives to access;

·        greater innovation in consumers' interests, encouraged by a flexible and well understood regulatory framework for advice;

·        variety of channels for consumers to access advice and guidance, including in the workplace, and appropriate flexibility in how consumers pay for advice; and

·        consumer engagement with their financial affairs and seeking the advice and guidance they  need.

The Baseline Report is underpinned by two pieces of consumer research: Qualitative research and Quantitative research. Quantitative consumer research will be available annually as will supply-side data from FCA reporting.  The FCA and HM Treasury plan to carry out the same research in two years' time in 2019 and compare the data sets generated, to see how the market is evolving.

The Retail Distribution Review's 2017 Post-Implementation Reviews will be combined with the 2019 post-FAMR review to give the market time to react to regulatory changes flowing from FAMR and MiFID II and minimise reporting by firms. The results will be published early in 2020.  Read more here.

FCA publishes its annual report

The FCA published its annual report and accounts for the year ended 31 March 2017 [05.07.17] looking back on significant work in 2016/17. The FCA also published [05.07.17] three other separate annual reports for 2016/17 on: Competition, Enforcement, Anti-Money Laundering and Diversity.  Their Annual Public Meeting at which the Annual Report and Accounts will be discussed is to be held on 18 July 2017. It is now fully booked but will be live-streamed.

FCA publishes prospectus rules instrument

The FCA has published its Prospectus Rules (Miscellaneous Amendments) Instruments 2017 (FCA 2017/40) [06.07.17]. It contains amendments to the Glossary and Prospectus Rules sourcebook, and comes into force on 20 July 2017.


Brexit

Andrew Bailey, Chief Executive of the FCA, spoke on why free trade and open markets in financial services matter

Andrew Bailey spoke at the Reuters Newsmaker Event [06.07.17] in London about Brexit, the FCA's Brexit work and asked if "restricting trade is an inevitable or necessary response to Brexit and in the interests of anyone?" To which his answer was no. 

The FCA has three main areas of Brexit work:

·        being ready to provide the Government with the technical advice it needs for the forthcoming negotiations;

·     working with authorised firms to understand their plans for cross-border operations into the EU and from the EU into the UK; and

·     working with the Government on the Repeal legislation.

Their objective is, with Government, to have a clear and functioning regulatory framework for when the UK is no longer a member of the EU giving certainty to all interested parties.

Andrew Bailey said that after the referendum the FCA decided to continue:

·     to be an "outward-looking regulator" engaging with global bodies including the Financial Stability Board and the International Organisation of Securities Commissions;

·     to engage constructively with their work "with, and as part of, the European Institutions", notably ESMA, and to implement EU legislation while the UK is still an EU Member State.

According to Bailey, the FCA is not going to turn away from engaging internationally – "that would be a big mistake".   "Brexit should not be conflated with whether or not to have open global financial markets and trade in financial services" Bailey said, "But we cannot take open markets, freedom of location and free trade for granted". Bailey also said "Firms should be able to take their own decisions on where they locate, subject to appropriate regulatory arrangements being in place which preserve the public interest".

Bailey asked the question "what sort of institutional structure of regulatory co-operation do we need to preserve open markets and free trade alongside Brexit?" commenting that it would "require strong co-ordination of regulatory institutions across the UK and the EU" for which four key features are:

·        rule comparability - though not exact mirroring;

·        supervisory co-ordination;

·        information exchange; and

·        a mechanism for dealing with differences.

The UK would also have to provide "comfort to trading partners" of high standards and that there would be no "race to the bottom on deregulation" he said.

According to Bailey there is "ample evidence" open financial services markets and free trade do not depend on common rules and shared regulatory institutions, they can safely exist where there are consistent regulatory outcomes.  "There is already a basis for the sensible use of equivalence as the basis for market access between the EU and UK in the future.  It is the basis that the EU uses for a growing number of other countries" he said.

House of Commons Library publishes briefing paper on Brexit and financial services

The House of Commons Library published [06.07.17] a briefing paper (House of Commons Library Briefing Paper Number 07628 by Tim Edmonds) containing a number of responses from "relevant organisations" (including financial institutions and regulators) on the impact of the vote to leave the EU. The briefing contains Parliamentary information licensed under the Open Parliament Licence v3.0.


Recent Articles

New transparency requirements for Scottish Limited Partnerships in force: here.

HMRC strengthens investigation staff ahead of new corporate criminal offence here. Read more in the IMB [04.05.17]: Criminal Finances Bill receives Royal Assent and contains two new offences for businesses here.

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,

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.