On February 9, 2017, HM Treasury published a paper summarizing responses to its consultation on the transposition of the revised MiFID and three draft statutory instruments to facilitate transposition. Member States are required to adopt measures transposing MiFID II by July 3, 2017 and to apply the provisions from January 3, 2018. HM Treasury consulted on MiFID II transposition in March 2015 and sought feedback on draft legislation to facilitate transposition and its proposed policy approach to access for third country firms, data reporting services, position limits and reporting, unauthorized persons, structured deposits, the power to remove board members, organised trading facilities and binary options. Most respondents broadly agreed with the proposed measures for transposition. However, further guidance has been provided on numerous aspects of the proposed legislation. Since the consultation, a number of further issues in MiFID II requiring further legislative amendments as part of transposition have been identified and are included in the draft legislation and detailed in the report. HM Treasury notes that despite the UK voting to leave the EU, until exit negotiations are concluded, the UK remains a full member of the EU and must comply with MiFID II accordingly.

The first draft regulation is The Financial Services and Markets Act 2000 (Markets in Financial Instruments Regulation) Regulations 2017 (the "Main Regulations"). The Main Regulations designate the FCA, PRA and the BoE as the regulators for the purposes of supervision of firms subject to MiFID II and MiFIR. On access for third-country firms, HM Treasury has stated that it will proceed with its plans to maintain the UK's current overseas persons exclusion regime. This means that the UK has opted not to exercise its discretion under MiFID II to require third-country firms to establish a branch to the extent that they wish to provide investment services to retail or elective professional clients in the UK. The changes to UK legislation will allow an EU MiFID II branch access to the UK as well as third-country firms. The draft Regulations transpose the position limits regime and provides the FCA with power to intervene to enforce position limits. MiFID II requires regulators to have the power to remove members of the management board of an investment firm or market operator. The draft Regulations transpose this requirement by creating a standalone power for the FCA and the PRA to remove members of management boards of investment firms, credit institutions and recognized investment exchanges when certain conditions are met.

The second draft regulation, The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017, amends the Financial Services and Markets Act UK (Regulated Activities) Order 2001, commonly known as the "RAO." The RAO specifies activities and investments for the purposes of defining a "regulated activity." MiFID II will introduce a new specified activity of operating an organised trading facility and certain derivatives relating to currencies, binary contracts and emission allowances have been added as specified investments. The draft Order amends the RAO to provide that operating an OTF is a regulated activity, include the new specified activities and investments and include structured deposits within the scope of certain specified activities.

HM Treasury confirms that it will proceed with introducing a separate regime for the regulation of data reporting services providers, The Data Reporting Services Regulations 2017, instead of including DRSPs' activities as regulated activities under the RAO. MiFID II provides authorization requirements for three specific data reporting services: Approved Reporting Mechanisms, Approved Publication Arrangements and Consolidated Tape Providers. Following feedback received, HM Treasury has not created separate offenses for market manipulation by DRSPs, noting that such offenses largely already exist and that existing UK legislation enables the FCA to impose financial penalties and other sanctions for market manipulation concerning MiFID II.

HM Treasury expects the legislation to be finalized early in 2017. The timeframe is mostly intended to help firms apply for authorization or variation of permission by July 3, 2017. The FCA has already opened its applications gateway and published the application forms.

The summaries of responses to the consultation are available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590504/PU2037_MIFID_final_web.pdf , the Main Regulations are available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590297/Annex_A_-_the_Main_Regulations_.pdf , the draft statutory instrument amending the RAO is available at: http://www.legislation.gov.uk/ukdsi/2017/9780111154168/pdfs/ukdsi_9780111154168_en.pdf , the transposition note is available at: http://www.legislation.gov.uk/ukdsi/2017/9780111154168/pdfs/ukdsitn_9780111154168_en.pdf , the draft instrument outlining the Data Reporting Regulations is available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/592295/Annex_C_.pdf  and the FCA application and notification user guide are available at: https://www.fca.org.uk/publication/documents/mifid-ii-application-notification-guide.pdf .

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