The FCA has published Policy Statement 17/14: Markets in Financial Instruments Directive II Implementation – Policy Statement II (PS17/14).
PS 17/14 follows the first policy statement (CP17/15) published in March this year and summarises the feedback received on CP15/43, CP16/19, CP16/29, CP16/43, and CP17/8. This 1068-page long document sets out final rules on conduct issues, including research, inducements, client categorisation, best execution, suitability and appropriateness, taping, client assets, product governance and perimeter guidance. Notable points include:
- Inducements in relation to research payments – The FCA confirms that it will apply MiFID II provisions to collective portfolio managers and not only to the investment firms that are subject to MiFID II. The FCA has also amended its guidance on how quickly firms should pass research charge deductions into a research payment account (RPA), and clarifies that it does not require investment managers to have a single RPA per research budget.
- Client categorisation – The FCA has lowered to 10m the quantitative criteria portfolio threshold for local authorities that wish to opt up to professional client status. This makes the quantitative criteria closer to the structure and nature of UK local authorities and makes it easier for them to opt up to professional status, when undertaking treasury management or investing on behalf of local government pension scheme fund.
- Best execution – The FCA will extend the MiFID II best execution regime to Article 3 financial advisers and UCITS firms. However, contrary to its previous proposals, changes in the best execution rules in MiFID II will not apply to Alternative Investment Fund Managers (AIFMs). This results in UK AIFMs and EEA AIFM branches remaining subject to the existing best execution standards.
- Appropriateness – The FCA confirms its view that collective investment undertakings other than Undertakings for Investments in Transferable Securities (UCITS), including non-UCITS retail schemes (NURS) and investment trusts, are neither automatically non-complex nor automatically complex.
- Taping – The FCA will not extend the MiFID II taping regime to capture all aspects of corporate finance business. However, firms must record conversations and electronic communications that are in scope of Article 16(7) of MiFID II, which are communications that result in (or are intended to result in) transactions concluded when dealing on own account and the provision of client order services that relate to the transmission and execution of client orders.
A table of additional requirements in the FCA implementation of MiFID II can be found at page 15 of the document.
On that same day, the FCA has published its sixth consultation paper (CP17/19) with the proposal to change rules for recognised investment exchanges (RIEs) operating multilateral trading venues (MTFs) or organised trading facilities (OTFs) to join the Financial Services Compensation Scheme (FSCS); to amend the Decision Procedures and Penalties Manual (DEPP) and Enforcement Guide (EG); and to bring consequential technical changes to the Prospectus Rules and Glossary in the Handbook.
The deadline for comments on CP17/19 is 7 September 2017 with the necessary rule changes published by November 2017.
The FCA made clear its expectations for firms to continue with their preparations for the application of MiFID II on 3 January 2018 and to take reasonable steps to meet this deadline.