Following the initial implementation of the Senior Managers’ and Certification Regime (the SM Regime) in March 2016, the FCA has proposed new measures which aim to reinforce the importance of individual accountability at the most senior levels of organisations.

The background to the new measures is the FCA’s continued focus on firms’ culture as well as the FCA’s ability to identify and assess key individuals within firms.

The FCA aims to consult on (i) the “Duty of Responsibility” for Senior Managers, (ii) a requirement for UK branches of overseas banks to inform UK employees of FCA and PRA whistleblowing services, and (iii) extending conduct rules to all non-executive directors of banks and insurers.

Andrew Bailey, Chief Executive of the FCA, has recently highlighted that among the responses to the SM Regime in March 2016, the FCA saw evidence of overlapping or unclear allocation of responsibility within firms, with responsibility sometimes shared among junior staff. The FCA expects to publish tailored feedback to the responses for UK banks and building societies, non-EEA branches, incoming EEA branches and credit unions.

From 2018, the SM Regime will be extended to all regulated financial services firms.


The FCA has published its third consultation paper on the implementation of the revised Markets in Financial Instruments Directive (MiFID II).

MiFID II picks up on several of the themes of recent work in the UK on retail and wholesale conduct issues, including:

  • introducing the concept of independent investment advice and requirements for firms to ensure employees providing investment advice have the necessary knowledge and competence; 
  • new product governance requirements which cover similar ground to the FCA guidance on the responsibility of providers and distributors for the fair treatment of customers and to points raised in recent thematic reviews;
  • strengthened inducements rules which are consistent with the recent work the FCA has done on retail financial advisers and inducements; 
  • new rules on inducements and the receipt of research which will strengthen transparency and controls by investment firms over costs and third party research; and
  • enhanced rules on best execution to help address some of the issues the FCA identified in their 2014 thematic review of firms’ implementation.

In relation to non-MiFID business, the FCA proposes to apply the same conduct rules to Article 3 firms (which do not have to be authorised as MiFID firms) as to MiFID investment firms where the conduct rules are on the list of analogous requirements (which Article 3 firms must comply with). These requirements, as well as being analogous, have their own benefits in helping to achieve high standards of conduct. Where conduct rules are not on the list of at least analogous requirements, the FCA will make case-by-case decisions on whether to impose new requirements coming from MiFID II on Article 3 firms.

The FCA’s decision not to apply MiFID II conduct standards to all designated investment business means that different sets of rules would apply to different aspects of a firm’s business.

For third country firms the FCA will apply the same conduct rules as they would to MiFID investment firms to ensure they are treated no more favourably than branches of EEA firms.

The third consultation is open until 4 January 2017, except for comments on Chapter 16 - Supervision manual, authorisation and approved persons - which should reach the FCA by 31 October 2016. A fourth consultation paper is likely to be published towards the end of this year.


The FCA has published CP16/30 proposing rules and guidance aimed at standardising the disclosure of transaction costs incurred by workplace pensions.

To ensure that independent governance committees (IGCs) and trustees receive information about transaction costs, the FCA is proposing to place a duty on asset managers to disclose aggregate transaction costs to pension schemes that, directly or indirectly, invest in their funds. The FCA has also proposed that asset managers provide the breakdown of transaction costs on request with the total broken down into categories of identifiable costs which could include specific costs like taxes and securities lending costs.

At the moment, IGCs and trustees are required to request and report on transactions costs but asset managers are not required to provide full disclosure of these costs in a standardised form.

The proposed new rules aim to deliver a high degree of consistency in how transaction costs are reported and to give governance bodies confidence that the information presented to them contains a comprehensive assessment of costs.

To ensure consistency across the market, the FCA also proposes that the calculation uses a methodology for evaluating transaction costs, called the slippage cost. This compares the price at which a transaction was actually executed with the price when the order to transact entered the market.

Firms who are unable to provide transaction cost information for all of the assets in a scheme will have to disclose this clearly to the governance body with an explanation of why it has not been possible to provide the information.

The consultation is open until 4 January 2017.

06.09.2016 - UCITS V DEADLINE

Depositaries of UCITS funds are reminded that the Level 2 Regulations (EU 2016/438) come into force on 13 October 2016.

The Regulations, which are directly applicable, supplement the UCITS V Directive (2009/65/EC) and in particular the provisions relating to depositaries. These include the provisions dealing with the depositary agreement; depositaries’ duties relating to dealings in units; valuation of units; carrying out instructions; settlement; income and distributions; cash monitoring; and safekeeping of fund assets.

It is likely that most depositaries are already in compliance. If not, time is now very short.


The European Securities and Markets Authority (ESMA) has published a second tranche of advice to the European Parliament, Council and Commission on the application of the AIFMD passport to non-EU alternative investment fund managers (AIFMs) and alternative investment funds (AIFs) in twelve non-EU countries.

Articles 36 and 42 of the AIFMD subject non-EU AIFMs and non-EU AIFs managed by EU AIFMs, to the national private placement regime (NPPR) of each of the Member States where the AIFs are marketed or managed. However, the AIFMD also delegated authority to the Commission to draft legislation to (i) extend the use of the marketing passport to non-EU AIFMs and non-EU AIFs, and (ii) terminate the NPPRs. The Commission’s extension of the marketing passport and eventual termination of the NPPRs is dependent on ‘positive advice’ from ESMA as to each of these actions.

Following the publication of a first set of advice in July 2015, ESMA has now published advice on the application of the passport to the following non-EU countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Isle of Man, Japan, Jersey, Switzerland, Singapore and the United States.

In determining whether the marketing passport should be extended to a given jurisdiction, ESMA assessed whether there were significant obstacles regarding investor protection, competition, market disruption and monitoring risk which would interrupt the application of the AIFMD, and whether the National Competent Authorities (NCAs) of each jurisdiction have established track records of smooth cooperation with their EU counterparts.

ESMA’s findings in relation to each of the above-mentioned jurisdictions is summarised below:

  • ESMA found that there are no significant obstacles in extending the marketing passport to Canada, Guernsey, Japan, Jersey and Switzerland.
  • As regards Bermuda and the Cayman Islands, both are in the process of implementing new regulatory regimes. As such ESMA will undertake further reviews before making a decision.
  • The Isle of Man was told it did not have a sufficient AIFMD equivalent regime in place to warrant approval.
  • For Hong Kong and Singapore, ESMA indicated that there are no significant obstacles to extending the AIFMD passport to the AIFs in those countries, provided that equal regimes apply to all the EU Member States.
  • ESMA advised that there are no significant obstacles to extending the marketing passport to Australia provided the Australian regulator extends its “class order relief” to other Member States.
  • ESMA advised that there are no significant obstacles to granting the passport to managers and funds established in the United States, provided there is no “public offering” in the EEA.

In addition to those jurisdictions, ESMA gathered intelligence using the same assessment methodology applied to the above, on the following non-EU countries: Malaysia, Egypt, Chile, Peru, India, China and Taiwan. It remains unclear when ESMA will deliver further submissions on these to the European Parliament, the Council and the Commission.


The European Securities and Markets Authority (ESMA) has issued a consultation paper in relation to the Securities Financing Transaction Regulation (SFTR) and the draft technical standards which will implement the SFTR. Securities financing transactions include securities lending repos and certain other transactions involving a temporary exchange of assets.

The SFTR will require market participants (both financial and non-financial) to report details of securities financing transactions to an approved trade repository in the EU. Details to be reported will include how the collateral is made up, whether it is available for reuse (or has already been reused), any substitutions of collateral and haircuts involved in the transaction.

The consultation paper seeks stakeholder views on key areas within the draft SFTR implementing measures, including:

  • procedure and criteria for registration as a trade repository;
  • reporting, including the use of internationally agreed reporting standards and the contents of reports;  details of the transparency, collection, aggregation and comparison of data; and
  • the levels of access which will be granted to different competent authorities. In addition to the SFTR, ESMA has proposed amendments to the standards which implement the European Market Infrastructure Regulation. The proposed amendments aim to ensure that market participants are subjected to equivalent registration and access rules. 

The deadline for feedback to the consultation paper is 30 November 2016. Once all feedback has been received, ESMA will finalise its draft technical standards for submission to the European Commission by the end of Q1/beginning of Q2 2017. ESMA expects that the finalised SFTR implementing measures will be applied from 2018.


The European Securities and Markets Authority (ESMA) has published a consultation paper on product governance guidelines under the Markets in Financial Instruments Directive (MiFID II).

The requirements on product governance were introduced under MiFID II to enhance investor protection by regulating all stages of the life-cycle of products or services in order to ensure that firms which manufacture and distribute financial instruments and structured deposits act in the clients’ best interests. These requirements cover arrangements for:

  • firms to adopt when manufacturing products (product governance obligations for manufacturers); and
  • firms to adopt when deciding the range of products and services they intend to offer to clients and when offering or recommending such products to clients (product governance obligations for distributors).

The product governance requirements set out in MiFID II cover a broad range of topics, both product and process related. ESMA has decided to develop draft guidelines which mainly address the target market assessment, as this was identified as the most important element for ensuring the common, uniform and consistent application of the new framework and there was a strong demand from stakeholders to ESMA to clarify how the new requirements should be implemented and applied.

ESMA states that national competent authorities should supervise firms’ compliance with their obligations under MiFID II. ESMA believes these guidelines will assist firms in meeting these obligations. The guidelines should be applied in a proportionate manner, taking into account the nature, scale and complexity of a firm’s business and the nature and range of financial services and activities undertaken.

The proposed guidelines address issues specific to manufacturers and distributors as well as issues common to both.


  • identification of the potential target market: categories to be considered;
  • dentification of the potential target market: differentiation on the basis of the nature of the product manufactured; and
  • articulation between the distribution strategy of the manufacturer and its definition of the target market.


  • identification of the target market: categories to be considered and differentiation on the basis of the nature of the product distributed;
  • identification and assessment of the target market: interaction with the provision of different investment services;
  • regular review by the distributor to respectively assess whether products and services are reaching the target market;
  • distribution of products manufactured by entities not subject to the MiFID II product governance requirements; and
  • application of product governance requirements to the distribution of financial instruments manufactured or issued before the entry into application of MIFID II.

Issues applicable to both manufacturer and distributor include:

  • identification of the negative target market: clients for whom the investment products they manufacture and/or distribute are not compatible; and
  • application of the target market requirements to investment firms dealing in wholesale markets (that is, with professional clients and eligible counterparties).

The consultation closes on 5 January 2017. ESMA will consider the feedback it receives to the consultation in Q1 2017 and expects to publish a final report in Q1/Q2 2017.