29.07.2016 - FCA SECOND CONSULTATION ON IMPLEMENTATION OF MIFID II

The Financial Conduct Authority (FCA) has published its second consultation on the UK’s implementation of MiFID II (Directive 2014/65/EU on markets in financial instruments) (Second Consultation). The Second Consultation follows the FCA’s first consultation on the implementation of MiFID II, which was undertaken in December 2015, and focused on the regulation of secondary trading of financial instruments.

The Second Consultation covers a broad range of issues, including the framework for position limits, management and reporting for commodity derivative contracts and the way that firms organise themselves to do business and comply with their regulatory obligations. The Second Consultation seeks views on proposed changes to the Handbook in the following areas:

  • Commodity derivatives: a new section to the Market Conduct Sourcebook (MAR) setting out guidance and directions on MiFID II’s regime on position limits, position management and position reporting for commodity derivatives contracts.
  • Supervision (SUP): requirements on the notification of breaches and information provision taking account of MiFIR (Regulation (EU) No 600/2014 on markets in financial instruments) and non-FSMA Treasury implementing regulations; transitional provisions for transaction reporting to take account of the revocation of the existing MiFID implementing regulation; and changes to passporting requirements.
  • Prudential Standards: changes to the prudential sourcebooks to reflect MiFID II’s introduction of the new investment service of operating an Organised Trading Facility (OTF) and the abolition of the exemption for a local firm.
  • Senior Management Arrangements, Systems and Controls (SYSC): proposals to enhance governance through new management body requirements, key organisation requirements which are in SYSC and in an EU directly applicable regulation. Also sets out proposed approach to how the management body and organisation requirements will apply to branches of non-EU firms and firms exempt under Art 3 of MiFID II.
  • Remuneration requirements for sales staff: proposed new section in SYSC but no proposed cross-cutting standards applicable to firms regulated under other EU directives.
  • Whistleblowing: single proposed chapter in SYSC implementing MiFID II requirements alongside existing domestic obligations.
  • Client Assets Sourcebook (CASS): updates to implement MiFID II.
  • Complaint handling: proposed new section in DISP to set out the enhanced complaint handling rules in MiFID II which will extend to a wider range of clients than is currently the case.
  • Fees Manual (FEES): proposed initial and ongoing costs for firms who wish to apply to operate an OTF or vary their permission to do so or to operate a Multilateral Trading Facility (MTF) and the onboarding fees for firms who connect to the FCA’s Market Data Processor (MDP).

The FCA indicates that it intends to publish a third consultation paper on MiFID II focusing on changes to the Conduct of Business Sourcebook (COBS) and the Perimeter Guidance manual (PERG). A single policy statement on the matters covered by the FCA’s consultations will be published in 2017.

27.07.2016 - EUROPEAN COMMISSION CONSULTATION ON POTENTIAL EU PERSONAL PENSION FRAMEWORK

The European Commission has launched a public consultation on a potential EU-wide personal pension framework. The consultation’s objective is to help the Commission analyse the case for an EU personal pension framework for simple, efficient, competitive personal pensions with the ultimate aim of making individuals in the EU more confident about using personal pensions and thereby helping them to save more retirement income.

Personal (or private) pensions are defined as long-term savings products with a retirement objective which are subscribed voluntarily and are neither social security-based nor occupational. Personal pensions can be offered in different forms such as life insurance products, pensions insurance or investment funds.

The consultation paper asks private individuals, consumer organisations and other stakeholders for feedback on their expectations of an EU framework. Specifically, it seeks views on how personal pensions can better complement retirement income in the future, and how best to address current obstacles within the personal pensions market including; costs and charges, limited portability, diverse taxation and competition between providers.

The consultation builds on previous consultations and technical advice launched by the Commission and European Insurance and Occupational Pensions Authority on personal pensions but increases their scope.

The consultation will run until 31 October 2016

25.07.2016 - ESMA WARNING ABOUT SPECULATIVE PRODUCTS

The European Securities and Markets Authority (ESMA) has issued a warning about the sale of Contracts for Differences (CFDs), binary options and other speculative products. This follows an increase in the offerings of such products to retail clients, including wide advertisement across the EU (largely via online platforms), as well as a rise in investor complaints of serious financial losses when trading in speculative products.

ESMA reminds firms and investors that speculative products are inherently risky. ESMA reports that supervisors have observed that these products, which often fail to comply with regulatory obligations under MiFID and are being offered by unauthorised or unregulated entities, are being sold in an aggressive way. Studies carried out by national supervisors have shown that in most cases retail clients investing in CFDs, binary options and other speculative products lose the money which they have invested.

Key features of the advertisement of such products to retail clients include offers of “free start-up money”, gifts, discounted fees and trading tutorials. Investors are also not being informed of inherent risks in investing whilst potential gains are being emphasised, leaving investors with the impression that such investments carry little to no risk. ESMA stresses in the warning that this is wrong.

In February 2014, ESMA issued an opinion on MiFID practices for firms selling complex products, along with an investor warning on the risks of investing in such products.

In response to the growing issue, ESMA will continue to monitor such practices and co-ordinate with home and host state competent authorities. ESMA will also consider the need for further work in light of the new requirements and powers under MiFID II and MiFIR, which will apply from January 2018.

26.07.2016 - ESMA ITS ON MARKET ABUSE

The European Securities and Markets Authority (ESMA) has published draft implementing technical standards (ITS) on sanctions and measures under the Market Abuse Regulation ((EU) No 596/2014).

The ITS set out how competent authorities should notify ESMA annually about any investigations that they have conducted and any sanctions and measures they have imposed as a consequence. The ITS will need to be endorsed by the European Commission and, provided that neither the European Parliament or European Council objects, the ITS will become enforceable.