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Markets and Securities Services | Issue 46
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Article 3 firms carrying on MiFID business.
The current COBS rules will continue to apply
to non-MiFID business, pending consultation
on implementation of the IDD.
Dealing and managing
Changes to the FCA’s existing rules to implement
the new MiFID II standards across best execution,
client order handling, personal transactions and
requirements for investment firms underwriting
and placing. The FCA also proposes to apply the
MiFID II enhancements to the best-execution
rules to firms that are carrying out collective
portfolio management and are not subject to
MiFID II, with some selected exceptions.
Investment research
To transpose the MiFID II rules into a single
chapter in COBS.
Other conduct issues
The requirement for a written basic agreement
will now also apply to professional clients for
MiFID business. The FCA gives more specific
detail of the content of these agreements.
It also proposes some further changes in the
COBS specialist regimes chapter for firms
carrying out collective portfolio management
activity in order to make it clearer.
Appropriateness
MiFID II extends the products classified as
“complex”, meaning the appropriateness test
will apply more widely. The FCA is copying out
the changes in MiFID II about the way in which
the test operates, including more detailed
criteria for determining whether a product is
“non-complex”. It proposes applying the revised
rules to MiFID business only.
Part II: other matters
This section covers:
Product governance
The FCA proposes to implement product
governance provisions in MiFID II as rules
for firms engaged in MiFID business and as
guidance for non-MiFID firms that manufacture
or distribute MiFID products.
Knowledge and competence requirements
The FCA will comply with the European
Securities and Markets Authority (ESMA)
guidelines on knowledge and competence and
propose to make small amendments to its
Training and Competence (TC) sourcebook and
Senior Management Arrangements, Systems
and Controls (SYSC) to reflect this.
Recording of telephone conversations and
electronic communications (taping)
The FCA proposes to update its current taping
rules with the changes required by MiFID II.
It is proposing that discretionary investment
managers (DIMs) be fully subject to the
requirement to tape, and the taping requirement
applies to corporate finance business. Its view
is also that taping should be extended to Article
3 firms, but it is open to considering other
proposals to address consumer protection
concerns in this area.
Supervision, authorisation and approved persons
The FCA proposes the introduction of a new Form A
to get information on a firm’s organisational
structure and management body. Unlike other
proposals, the consultation on this closes at the
end of October so that the FCA can have the
forms in place when it opens the gateway for
firms seeking to be authorised in early 2017.
Perimeter guidance
The FCA proposes new guidance on scope
changes in MiFID II. These include foreign
exchange derivatives, emission allowances,
commodity derivatives and exemptions for
professional firms and commercial firms trading
commodity derivatives.
Consequential changes to the Handbook
Based on FCA proposals in CP16/19 on SYSC
and CASS (FCA Client Asset sourcebook), it
proposes some consequential amendments
to the Handbook. It also proposes updates to
some references in their prudential rules.
Areas discussed in the CP following up on issues
discussed in other areas of the FCA’s work
Financial Advice Market Review (FAMR)
6
The FCA considers that the new framework
of conduct rules in MiFID II will reinforce and
strengthen the retail and the wholesale conduct
work that it has been doing in the UK.
HMT has also published a consultation paper
7
to amend the wording in Article 53 of the
Regulated Activities Order to reflect the
definition of a personal recommendation as
set out in the original Markets in Financial
Instruments Directive,
8
in line with the
recommendation in FAMR.
Depending on the outcome of this consultation,
the FCA may need to consider the impact of any
changes on its proposals on inducements.