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Compliance

MiFID II SERIES – Overview of Guidance

Posted on 26 May 2017

On 3 January 2018, MiFID II will be implemented into UK national law replacing the Directive 2004/39/EC (MiFID I). In preparation for the implementation, Laven Partners is publishing a series of newsletters entitled ‘MiFID II Series’, to help our clients and friends navigate the regulation and assess the impacts it will bring.

The following newsletter seeks to examine some of the latest updates from regulators and the industry in regards to the implementation of the new directive.

FCA publishes near-final rules on MiFID II

At the end of March this year the FCA published its first policy statement following a review of its consultation papers regarding the implementation of MiFID II. The policy statement sets out its near-final rules on a variety of topics such as trading venues, algorithmic trading, position limits, system and control requirements for firms providing MiFID investment services and fees. The policy statement affects a wide range of firms including investment managers and investments advisers.

The FCA has advised that firms continue with their preparations on reviewing their processes and think about the changes needed in anticipation of next year. The regulator cautions that firms intending to make applications for authorisation or variation of permission linked to the changes in MiFID II should do so as soon as possible. This will be relevant where firms relied on exemptions or need to carry out certain services not previously in MiFID. The second policy statement will be published in June and this will cover the outstanding issues such as conduct of business, changes to the scope of the application of the principle for businesses and client asset protections.

FCA publishes fifth consultation paper

Concurrent with the first policy statement, the FCA has published its fifth consultation paper (CP17/8) on MiFID II. The paper sets out its proposed approach for non-discretionary changes linked to MiFID II and to areas of the FCA Handbook such as penalties and enforcement, guidance on the use of third parties by trading venues, investment firms sending the FCA financial instrument reference data (a data collection infrastructure established by the European Securities and Markets Authority (ESMA), for member states to collect data in an efficient and harmonised manner), and commodity derivative position reports.

FCA publishes “MiFID II – application and notification user guide”

Following the fourth consultation paper at the end of last year, the FCA published a user guide in January 2017 to help introduce firms to the changes and new processes for authorising investment firms which requires the firms and others to make a range of notifications as a result of MiFID II. Notably, the user guide highlights key changes to the scope of the Approved Persons application and passporting arrangements.

The guide notifies firms of key considerations that need to be considered, in addition to providing practical information such as who will be affected and how. The FCA also reminds firms that they must ensure that they have the correct permissions in place to carry out regulated activities once MiFID II comes into effect. This is probably one of the key elements that slow starters may miss and which could seriously harm their business. It is important for firms to establish if they need any new permissions.

ESMA on transaction reporting requirements

MiFID II and the Markets in Financial Instruments Regulation (MiFIR) will increase the scope of the regulatory obligations for reporting entities in relation to reference data, transparency, double volume cap and transaction reporting. In the final quarter of last year, ESMA produced guidelines on transaction reporting, order record keeping and clock synchronisation under MiFID II. In addition, it also published technical requirements and templates which provide further detail on the relevant reporting requirements.

ESMA also stated that it will start its data collection in preparation for the implementation of MiFID II and MiFIR, in order to provide relevant reporting entities with appropriate procedural implementation prior to the enforcement date.

ESMA updates MiFID II Q&A on investor protection

MiFID II seeks to strengthen the protection of investors with its new requirements and bulking up existing ones. ESMA produced a Q&A in relation to investor protection which was recently updated. The purpose of the Q&A is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR for investor protection. The updated Q&A provides further clarification on the following regulatory topics:

  • Best execution
  • Suitability
  • Post-sale reporting
  • Inducements (research)
  • Information on charges and costs
  • Underwriting and placement of a financial instrument

AIMA’s MiFID II guide for investment managers

Finally, AIMA has produced a useful guide which aims to provide investment managers with a better understanding on how MiFID II applies to them. The guide allows firms to navigate the rules and understand the practical steps needed, to ensure compliance with the new framework. It covers key aspects of MiFID II such as client categorisation, best execution, record keeping and telephone taping.

What to do now?

With only a few months to go, all firms should:

  • Amend policies and procedures with the help of compliance;
  • Review the need for any new permissions;
  • Where relevant review best execution and order management practices and determine how new reporting obligations will be operated;
  • Put in place reviews of the roles of relevant staff so that they adapt to the new rules; and
  • Maintain proper training so that staff act in accordance with the new rules.

 

If you are reviewing policies or establishing processes in your firm ahead of MiFID II, we may be able to help you. We also have automated software-driven solutions for the MiFID II directive that relate to non-financial reporting, compliance processes, client categorisation and record keeping. Contact us here for more information.