Following Brexit, and the conclusion of the process of onshoring EU legislation into UK law, the UK is now considering how its rules and regulations can diverge from the retained EU law, in a way that can give it a competitive advantage. As part of this process, the Financial Conduct Authority (“FCA”) and HM Treasury are looking into ways to consolidate the existing UK Markets in Financial Instruments Directive (“UK MiFID”), which implemented the EU MiFID (Markets in Financial Instruments Directive 2004/39/EC). The UK MiFID is a collection of laws and rules regulating the buying, selling and organised trading of financial instruments in the UK, currently spread across primary and secondary legislation, the FCA’s Handbook and regulatory technical standards (“RTS”).

On 28 April 2021, the FCA published a new consultation paper on changes to both conduct and organisational requirements, as set out in the UK MiFID.


In order to continue its commitment to promoting stronger competition and market integrity, as well as improving consumer protection, the FCA aims to remove unnecessary burdens on firms by amending the UK MiFID to effectively achieve its objectives.

Small and Medium-sized Enterprise (“SME”) and Fixed Income, Currencies and Commodities (“FICC”) research

Carrying out investment research is important as it provides investors with the necessary information to understand the company and assess the risks that come with the investment in question. In the past, brokerage firms ‘bundled’ the costs of the required research for shares with the transmission commissions, which is the amount a client pays to trade in shares.

This requirement was subsequently modified by MiFID’s replacement, MiFID II, and since then, transactions and research have been charged separately to clients. This modification aimed to increase transparency and accountability over costs. MiFID II introduced a rule which refrains firms from retaining any inducement received unless such inducement has the effect of enhancing the quality of service to the client and that the firm can prove that its duty to act honestly, fairly and professionally in accordance with the client’s best interest is not jeopardised. However, a limited selection of low-level inducements is allowed and are known as ‘minor non-monetary benefits’.

SME research

Whilst the FCA is in support of this approach brought forward by MiFID II, it does not agree that the treatment should be applied equally to all firms regardless of size and market capitalisation. Having carefully reviewed the market, the FCA proposes the broadening of the list of permitted minor non-monetary benefits to exempt SME research that are below a market capitalisation of £200 million from the inducement rules. This will allow these firms to be paid for their research activities, and not have these payments caught by the existing inducements rules as they currently stand. Research carried out on these firms on a rebundled or free of charge basis would also be exempt for being an acceptable minor non-monetary benefit.

The FCA is confident that this proposal will not only be more cost-effective but will also reduce the administrative burden for service providers to adopt and, in turn, improve the competition for research and the services offered to investors.

FICC research

The FCA also proposes to exempt third-party research that is received by a firm providing investment or ancillary services to its client, where such research is received in connection with an investment strategy primarily relating to FICC instruments. This is based on the fact that FICC Transactions are not typically paid for by an agency commission to the broker but rather, the broker makes its profit from the difference between the bid and offer prices. Additionally, the FCA could not observe a decrease in the bid-offer spread as a result of the MiFID II requirement. As such, it is of the view that FICC research should be exempted from the inducement rules.

Other researches

The FCA’s proposal also seeks to exempt a number of other researches, including those provided by independent research providers and others that are openly available to members of the general public.

Best execution reports

One of MiFID II’s objectives was to improve investor protection and increase transparency in the way firms execute client orders. This was achieved by the introduction of reporting requirements for execution venues and for firms executing and transmitting client orders, as set out in RTS 27 and 28 respectively.

However, the view taken by the FCA is that these two RTS have not achieved their intended objectives and that these reports are not only costly but also often not read by their targeted audiences, including retail and wholesale market participants. Moreover, the feedback from market participants indicated that the RTS 27 reports were too generic, yet overly complicated.

Having recognised that clients require specific information tailored to their businesses instead, the FCA proposes the removal of these obligations and the references to them set out in the FCA Handbook, which are found in the Conduct of Business Sourcebook (“COBS”) 11.2A, 11.2B and 11.2C. This being said, the FCA is yet to comment on whether firms will remain able to provide RTS 27 and 28 reports as they see fit, as opposed to being obliged to do so.


The FCA invites individuals and firms to respond to its consultation by 23 June 2021. After the deadline, the FCA will consider the feedback received and decide whether to publish any rules and guidance in a Policy Statement in the second half of 2021 as appropriate. The HM Treasury will also propose changes to the UK MiFID in due course.

For more information, and any guidance or advice on the UK MiFID or EU MiFID, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.