The FCA published CP 16/43 on 16 December. This is its fourth consultation paper on the MiFID 2 implementation. As a final “clean-up” consultation paper, it is an eclectic mix of technical matters which the FCA were not able to cover in its three previous consultations.
CP 16/43 can be accessed on the FCA's website and is open for comment until 17 February 2017 (except for comments on Chapter 7 on Fees which need to be provided to the FCA by 16 January 2017).
The following are the top three points for asset managers:
1) The inducements and research rules for management companies of authorised funds will change
The FCA is proposing some further substantive changes for residual CIS operators, AIFMs and UCITS management companies, as part of ensuring the application of the MiFID II standards to all these firms in relation to best execution, and inducements and research. In particular, the disclosure rules for authorised funds on inducements and research will be divided into prior disclosure requirements (met by including the relevant information in a prospectus) and periodic reporting requirements (satisfied by including the information in the fund's annual reports and accounts). The FCA has also clarified that, for the purposes of the inducements and research rules, the managed fund is itself the client of the firm, so the fund’s investors are not in the same position as the other clients of the firm.
Another area of focus is the research payment account for authorised funds, which can considered either as introducing a new type of payment out of scheme property or as increasing a payment to the authorised fund manager. The former will be classified as a fundamental change that requires prior approval by a meeting of unit holders, whereas the latter will be is a significant change requiring investors to be given prior notice (at least 60 days in the case of a fund available to retail investors). This is subject to a two year transitional period during which changing to both methods will be treated as a significant change.
2) Market data reporting can be aggregated
As part of its proposed guidance on the scope of the Approved Reporting Mechanism (ARM) regime, the FCA clarified its view that it is permissible for a group of investment firms to aggregate their reporting via an internal hub provided the hub uses an ARM or is an ARM, and that trading venues can use ARMs to report transaction reports to the FCA.
3) Tied agents registration requirements will change
Under MiFID I, Member States have the option of not allowing investment firms for which they are the Home State to appoint tied agents. This can lead to a UK MiFID investment firm appointing a tied agent established in another Member State in which that tied agent cannot be registered and, currently, such a tied agent must be registered with the FCA. Under MiFID II, Member States will all need to implement the tied agents regime, and so the FCA proposes updating the Supervision manual (SUP) so that tied agents no longer a need to be registered in the UK for these purposes.
Future briefings and events
The FCA will finalise the changes to the FCA Handbook to implement MiFID II in the first half of 2017. In the meantime, Eversheds will be releasing a series of in-depth briefings on topics of interest in the new year, to help you prepare for the new regime. To help prepare before the MiFID II implementation deadline, Eversheds will also be hosting a series of seminars which will provide an insight into the latest developments facing the industry, FCA implementation and an overview of the key issues that we have identified as being of concern to our clients.