On July 29, 2016, the FCA published a second consultation paper on implementation of MiFID II and the associated proposed changes to the FCA Handbook. The 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 proposals in the second consultation paper are relevant to many different firms, including investment banks, inter-dealer brokers, stockbrokers, investment advisers, corporate finance firms, trading venues, investment managers and prospective Data Reporting Services Providers. The consultation paper includes full implementation of relevant parts of MiFID II, consistent with FCA pronouncements that roll-out of MiFID II will not be affected by the Brexit vote.

With regard to commodity derivatives, the FCA has proposed a new chapter of the Market Conduct Sourcebook to set out guidance and directions on the MiFID II regime of position limits, position management controls, position reporting and other reporting, notification and information requirements for commodity derivatives contracts.

With regard to supervision, the FCA has proposed making changes to SUP to make clear that firms are required to notify the FCA of breaches of requirements to provide information, to introduce transitional provisions concerning the revocation of the MiFID implementing regulation and to update passporting provisions.

The FCA has also proposed to amend the prudential sourcebook following introduction of the new investment service of operating an Organized Trading Facility. Presumably, the Financial Services and Markets Act (Regulated Activities) Order 2001 will need amending to introduce this new activity. The exemption for a so-called “local” firm and certain references to MiFID which are no longer required will be deleted.

With regard to the Senior Management Arrangements, Systems and Controls (SYSC), the FCA has proposed new changes to transpose the MiFID II provisions relating to management bodies, conflicts of interest and organizational requirements. The FCA has also proposed a new section in SYSC on whistleblowing to implement, alongside existing domestic obligations, the MiFID II requirements, as well as a new section to cover the extension of the remuneration and performance management of sales staff rules to certain non-MiFID firms. The FCA has noted that MiFID II and CASS are broadly in alignment and consequently most of the new MiFID II requirements have already been implemented.

On the topic of complaint handling, the FCA has proposed a new section in DISP to reflect the enhanced complaint handling rules under MiFID II which will extend to a wider range of clients than currently.

The FCA has noted that a third consultation paper will be issued to consult on changes to the Conduct of Business Sourcebook, material on product governance, and further changes to the Perimeter Guidance Manual. It is envisaged that a single policy statement dealing with the topics covered by the consultation papers will be published in 2017. Responses to the consultation paper are due by October 28, 2016.

The first FCA MiFID II consultation paper is available at: https://www.fca.org.uk/static/documents/consultation-papers/cp15- 43.pdf and the second consultation paper is available at: http://www.fca.org.uk/static/documents/consultation-papers/cp16-19.pdf