The Financial Conduct Authority is urging firms to take action as the industry moves to get ready for the MiFID II reforms.
The Financial Conduct Authority (FCA) not only issued its “near final” rules on MiFID II, but also encouraged financial service firms to step up their efforts in order to avoid being left out in the cold in the U.K. market. This means applying now for authorization or variations of current permissions they may require.
According to Christopher Woolard, executive director of strategy and competition at the FCA, “MiFID II introduces substantial and wide ranging measures designed to improve investor protection and promote market integrity.”
Woolard adds that while some firms will need to be authorized for the first time, others will need to vary their current permissions. “It is critical that those firms submit their applications now. The FCA does not expect to make any significant changes to these rules before they are finalized in June this year, and therefore firms should not delay,” he says.
Elizabeth Budd, financial services regulatory partner of Pinsent Masons, also notes that typically the FCA takes four to six months to consider and approve an application for authorization. However, with the change in scope there are quite a lot of firms who now need to become authorised and if previous regime changes are anything to judge by, there could be a log-jam.
This is why any firm that needs to obtain authorisation, or vary their scope of permission should get in the queue now and make the application a priority.
As for the near final rules, they covered a wide range of topics including trading venues, transparency waivers and deferrals, algorithmic trading, and position limits and reporting for commodity derivatives.
The consensus was that by and large the final rules were largely unchanged and that the FCA will implement MiFID II in the way that its earlier consultation papers envisaged. However, there were some surprises. For example, the FCA retained its position that portfolio managers and pension firms will not be required to submit transaction reports and investment firms that do can use third parties to assist them but hey must submit the reports to the FCA themselves.
In addition and to the delight of the retail community, the more onerous requirements on recording were rolled back.
Last September, the FCA proposed extending the requirement to tape telephone calls with customers to smaller “Article 3” financial advisers. Fast forward to today, and the FCA deemed that the rules would have been disproportionate to their business model and they will now have the choice to record or submit written notes of all relevant conversations.
By contrast, the investment banks and asset managers will need to record telephone conversations and electronic communications that relate to “the reception, transmission and execution of orders, or dealing on own account.” In addition, these recordings have to be held for five years.
Deferrals for post-trade reporting also created debate and discussion but the FCA said it would allow trading venues to use the maximum permitted deferrals under MiFID II. This is one of the areas where national regulators are in control as policies do not have to be harmonized across the bloc.
As for multi-lateral trading facilities (MTFs), the FCA made it clear that this type of venue can execute orders against its own proprietary capital and engage in matched principal trading outside the MTF it operates as well as interact with the order flow within that MTF.
FCA officials said they plans to finalize the MiFID II rules in a further policy statement in June, which will cover remaining issues, including the conduct of business, perimeter guidance, and client asset protections.
