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Markets and Securities Services | Issue 46
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Insurance based investments, pensions,
and structured deposits
The proposals on conduct in this CP follow up
on the issues that the FCA raised in Discussion
Paper (DP) 15/3.
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There were two general issues
covered in that DP:
• Whether the FCA would apply the MiFID II
conduct rules to insurance based investment
business and pensions.
• And whether the FCA would incorporate the
MiFID II rules that apply to the activities of
advising on or selling structured deposits into
its Conduct of Business sourcebook (COBS).
The Insurance Distribution Directive (IDD) is
due to come into force in the first quarter of
2018, shortly after MiFID II applies. Its
implementing measures are still to be finalised
so the FCA has not proposed applying MiFID II
conduct rules to insurance-based investment
business and pensions in this CP. However, it
does think there remains a good case for having
a significant degree of consistency of conduct
rules across investment business. The FCA
will return to this subject when consulting on
implementing the IDD in 2017.
On structured deposits, respondents to DP15/3
were mainly in favour of putting MiFID II rules
dealing with structured deposits into COBS. This is
what the proposals in this CP do.
The FCA also believes that Article 3 firms can
advise on and sell structured deposits, and, in
doing so, should be subjected to the relevant
analogous requirements. As such, the issues that
arise out of this are dealt with in the relevant
individual chapters in Part I of the CP.
Other non-MiFID business
Rules in COBS cover other non-MiFID business
and insurance based investment business and
pensions. This includes business conducted
by firms exempt under Article 3, and other
investment business covered by various specialist
regimes,
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including firms when carrying out
collective portfolio management activity.
In CP16/19,
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the FCA discussed its approach to
implementing MiFID II for firms exempt under
Article 3.
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MiFID II requires that such firms are
subjected to “at least analogous” requirements
to each of the individual organisational and
conduct requirements
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and their corresponding
implementing measures.
In this CP, the FCA proposes applying the same
conduct rules to Article 3 firms as to MiFID
investment firms where the conduct rules are on
the list of analogous requirements. The issues that
this approach creates are dealt with in each of the
relevant chapters in Part 1 of this CP. In Part II of the
CP, the FCA also makes proposals about taping for
Article 3 firms, a systems and controls requirement
that is on the list of analogous requirements that
the FCA did not cover in CP16/19.
The FCA makes proposals in this CP for non-
MiFID business that is not insurance-based
investment or pensions business or investment
business undertaken by Article 3 firms. The FCA
indicates in relevant chapters in Part I where
it does and does not seek to apply MiFID II
standards to this business.
A significant number of firms conduct both
MiFID and non-MiFID designated investment
business. The FCA recognises that firms may
find it more practical to take a single approach to
compliance for closely connected lines of business,
notwithstanding the differing regulatory standards.
Therefore, if the FCA decides, post-consultation,
to adopt its proposals, firms should be able, as far
as is feasible, to choose to apply a single set of