Treasury issues Banking Reform Act MoU: Treasury has issued a Memorandum of Understanding (MoU) between BoE, FCA, PSR and PRA as required by the Banking Reform Act. The MoU describes the role of each Authority in relation to the exercise of relevant functions which relate to matters of common regulatory interest, and how the Authorities intend to coordinate the exercise of their relevant functions. (Source: Financial Services (Banking Reform) Act 2013: MoU Between BoE, FCA, PSR and PRA)

Treasury issues FSMA MoU: Treasury has issued an MoU between FCA and BoE, including PRA, setting out the high-level framework that FCA and BoE, and where appropriate PRA, will use to cooperate with one another in relation to the supervision of markets and market infrastructure. (Source:FSMA: MoU between FCA and BoE, including PRA)

Treasury consults on MiFID 2: Treasury is consulting on the principles it will use when implementing MiFID 2 into UK law. Overall, it will:

  • make changes to existing legislation to maintain consistency;
  • use the copy-out approach wherever possible; and
  • consult on changes as early as possible.

It is now consulting on a set of secondary legislation:

  • the Financial Services and Markets Act 2000 (FSMA) (Markets in Financial Instruments) Regulations 2016 will designate FCA, PRA and BoE as competent authorities for the purposes of MiFID 2 and MiFIR (acknowledging that most responsibilities will be FCA's); provides for the article 3 exemptions; creates the position limit regime; imposes obligations on unauthorised persons in respect of algorithmic trading, provision of direct electronic access services, acting as a general clearing member and synchronising business clocks; provides for necessary changes in the recognition requirements; and makes other consequential amendments;
  • the FSMA (Data Reporting Services) Regulations 2016, which will set the UK regime for regulating data reporting services operators;
  • the FSMA (Regulated Activities) (RAO) (Amendment) Order, which:
    • makes operating an organised trading facility (OTF) a regulated activity;
    • brings structured deposits within the scope of certain activities;
    • makes emission allowances a specified investment;
    • makes options and futures specified investments in certain circumstances involving Alternative Investment Fund Managers (AIFMs); and
    • transposes the Article 2 exemptions; and
  • the FSMA (Qualifying EU Provisions) (Amendment) Order, which gives PRA and FCA appropriate powers to perform their roles arising from MiFIR.

A separate draft amendment to the RAO proposes transferring certain binary options to be regulated under FSMA rather than the current gambling legislation.

The consultation also covers:

  • third countries: the UK is not minded to apply the option MiFID 2 allows to require third country firms that wish to provide investment services to retail or elective professional clients to do so by setting up a branch. MiFID 2 allows Member States not to exercise this option so long as they do not act in such a way as to give preference to third country firms over firms from elsewhere in the EU. Treasury sees many consequences if it used the option, including narrowing the current overseas persons exclusion and making firms use the branch when dealing with retail and elective professional clients. It acknowledges there are advantages to the option, such as, ultimately, the ability to passport a third country branch. It seeks views on its preference to maintain the current position, making only necessary changes;
  • data reporting services: as well as publishing the draft legislation, Treasury is consulting on the key definitions of the entities that will fall within them and the requirements the regulations will place on them. It seeks views on several points, including whether respondents agree it is reasonable and proportionate to create a separate regulation for these providers;
  • position limits and reporting: Treasury believes this is best treated as a standalone regime applicable equally to authorised and non-authorised persons. It also proposes that the position reporting and management regime for investment firms and credit institutions operating trading venues should be in FCA's rules;
  • unauthorised persons: Treasury is consulting on its plans to apply certain aspects of MiFID 2, such as those on algorithmic trading, to firms that are otherwise exempt from MiFID under article 2. It also looks at whether FCA has adequate powers over those involved in benchmarks to satisfy MiFID 2;
  • structured deposits: Treasury proposes to introduce a definition for structured deposit into the RAO and provide that the regulated activities of dealing as agent in, arranging deals in, making arrangements with a view to transactions in, managing and advising on investments will catch activities related to structured deposits. It is also changing the FSMA (Financial Promotion) Order;
  • power to remove board members: Treasury seeks views on whether PRA and FCA's existing powers over approved persons are enough to meet MiFID 2 requirements or whether to introduce a standalone power to apply to MiFID investment firms and operators of recognised investment exchanges (RIEs);
  • OTFs: Treasury has proposed relevant amendments to existing legislation to allow appropriate credit institutions, investment firms and RIEs to operate OTFs. It says FCA will look at how to identify firms with an OTF permission that conduct matched principal trading and principal trading in illiquid sovereign bonds. Inviting or inducing a person to participate in an OTF will also be subject to the financial promotion restriction; and
  • binary options: the UK currently treats these options, which pay a fixed sum if the option is exercised or expires in the money, and nothing at all otherwise, as bets rather than financial instruments. Member States diverge on whether these would better be treated as financial instruments and Treasury now proposes to do so where the binary option is a derivative in relation to which an investment firm or credit institution is providing or performing investment services and activities on a professional basis.

Treasury asks for comments by 18 June. (Source: Treasury Consults on MiFID 2)

Treasury publishes BRRD responses: Treasury has published its response to its consultation on implementing the BRRD. It explains how respondents reacted to Treasury's proposals and any changes it made to the draft legislation. The final sets of laws implementing the BRRD came into force on 10 January. (Source: Treasury Publishes BRRD Responses)

Treasury publishes AML advisory: Treasury has published an anti-money laundering (AML) advisory note advising firms:

  • to apply appropriate enhanced due diligence in any dealings involving Algeria, North Korea, Ecuador, Iran or Myanmar;
  • to take appropriate actions to minimise risk, which may include enhanced due diligence, in respect of dealings with Afghanistan, Angola, Guyana, Indonesia, Iraq, Lao PDR, Panama, Papua New Guinea, Sudan, Syria, Uganda and Yemen.

It notes several of these jurisdictions also have sanctions regimes that relate to them. (Source: Treasury Publishes AML Advisory)

Treasury updates sanctions: Treasury has updated the sanctions lists in respect of Belarus, Al Qaida, and terrorism. (Source: Treasury Updates Sanctions)