On July 29, the UK Financial Conduct Authority (FCA) published a consultation paper (Consultation) on the UK implementation of the amended and restated Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR). The Consultation sets out the FCA’s proposed changes to the FCA Handbook to implement MiFID II and MiFIR provisions and covers the following topics:
- Commodity Derivatives and Positions. The FCA has proposed to add a new section to the FCA Handbook covering MiFID II obligations in relation to position limits, position management and position reporting. The FCA plans to insert this new section into the existing Market Conduct sourcebook.
- Supervision. The FCA has proposed changes in relation to breach notifications, transitional provisions for transaction reporting with the repeal of the MiFID implementing regulation, and changes in relation to passporting notifications and forms (among others). The proposed changes highlight that all transaction reporting obligations (including requirements to notify and remedy breaches discovered after January 2018) remain in place until satisfied.
- Prudential Standards. The FCA has proposed to update current prudential classifications in the FCA Handbook to account for investment firms operating organized trading facilities (a new type of trading venue introduced by MiFID II). The FCA also has proposed to remove references to “locals” from Chapter 3 of the Interim Prudential sourcebook for Investment Businesses (IPRU – INV), to reflect that the locals exemption contained in Article 2.1(l) of the existing Markets in Financial Instruments Directive (MiFID) has been deleted from MiFID II.
- Senior Management Arrangements, Systems and Controls. The FCA has proposed changes to transpose MiFID II provisions covering management bodies, conflicts of interest and organizational requirements. The FCA also has noted how these changes will impact common platform firms, firms under the optional exemption in Article 3 of MiFID (Article 3 Firms) and also UK branches of non-EU firms.
- Remuneration Requirements for Sales Staff. The FCA has proposed to insert a new section into the Systems and Controls sourcebook (SYSC) and to apply MiFID II remuneration requirements for sales staff to common platform firms, Article 3 Firms, and to UK branches of non-EU firms (with respect to activities from a UK establishment).
- Whistleblowing. The FCA proposes to insert a new whistleblowing chapter into the SYSC, to set out UK-specific, MiFID II and other EU whistleblowing requirements (including those under the Market Abuse Regulation, Capital Requirements Directive IV and Units in Collective Investment Undertakings V) all in one place.
Consequential changes to the FCA’s Client Assets sourcebook, complaint handling rules and the Fees Manual also are covered by the Consultation.
The Consultation follows an initial consultation paper published by the FCA in December 2015. The FCA plans to publish a third consultation paper covering changes to the Conduct of Business Sourcebook, product governance and the FCA Perimeter Guidance Manual later in 2016.
The FCA notes in the Consultation that it expects to publish a consolidated policy statement on all MiFID II implementation changes at the beginning of 2017.
For further information on the FCA’s initial consultation on the implementation of MiFID II published in December 2015, see the Corporate & Financial Weekly Digest edition of December 18, 2015.
Responses to the Consultation must be submitted to the FCA by October 28.