The FCA’s MiFID II Consultation: a let off for fund managers

In December 2015, the FCA published its CP 15/43 Consultation Paper, the first of its consultation papers on the implementation of the Markets in Financial Instruments Directive II (“MiFID II”). The Consultation Paper focuses on areas where the FCA have sufficient certainty about the MiFID II legislation to be able to make proposals for implementation. In this regard, the FCA have set out their implementation proposals in these areas, and are seeking views on the proposed changes. Below we have provided high level summaries of the key changes and proposals from the Consultation Paper:

Trading Venues

  • Regulated Markets (“RM”s) – Fixing issues around new obligations relating to algorithmic and high frequency trading, direct electronic access, tick sizes, business continuity and systems and controls. The FCA propose making changes to the Recognised Investment Exchanges sourcebook (REC).
  • Multilateral Trading Facilities (“MTF”s) – Changes to the requirements for MTFs. The FCA propose making changes to the Market Conduct sourcebook (MAR) in MAR 5.
  • Organised Trading Facilities (“OTF”s) – Due to the issues around the requirements for this new category of trading venue, the FCA propose introducing a new Handbook chapter for OTFs, MAR 5A.
  • Systematic Internalisers (“SI”s) – Amendments to MAR 6 in order to capture a number of changes to the SI regime, much of which is directly applicable by virtue of being included in MiFID.


As a result of the expansion of the transparency requirements to equity‐like and non‐equity markets, including the FCA’s approach to pre‐trade transparency waivers and post‐trade transparency deferrals, there have been proposals to make changes to a number of sections of the Handbook for trading venues including REC, MAR 5, and the new MAR 5A.

Market Data

The FCA is introducing the new Data Reporting Services Providers (DRSP) category of firms and their responsibilities, which also covers Transaction Reporting. In this regard, the FCA is seeking views on proposals within a new Handbook chapter, MAR 9 on DRSPs, and whether we should apply MiFID II’s transaction reporting obligations to managers of collective investment undertakings and pension funds.

Algorithmic and High Frequency Trading (HFT) Requirements

There will be controls for MTFs and OTFs in MAR 5 and 5A, and for trading firms in the new MAR 7A. These proposals will cover, among other things, business continuity, systems and controls, financial crime and market abuse, direct electronic access and tick sizes.

Passporting and UK branches of non‐European Economic Area (EEA) firms

There will be a number of technical changes needed to make the correct references to the new MiFID II provisions and to highlight the harmonised forms required for passporting notifications. These changes will predominantly apply to the Supervision manual (SUP). The FCA will also make a proposal to ensure that UK branches of non‐EEA firms are subject to the same rules as investments firms when undertaking investment services and activities.

Principles for Businesses (PRIN)

In regards to the extension in MiFID II of some conduct of business obligations, there is a proposal to extend the application of some of the principles, to include firms that conduct business with clients categorised as Eligible Counterparties (ECPs).

The Perimeter Guidance manual

MiFID II introduces some changes to the scope of investment services and activities and financial instruments, which will require the FCA to make proposals to revise parts of PERG 13 (PERG 13 provides guidance on the scope of MiFID), these will include guidance on the MiFID II definition of a ‘multilateral system’.

The FCA will also be consulting on the MiFID II issues which are not covered in the CP 15/43 Consultation Paper in the first half of 2016. In this regard, the FCA expects to propose changes to:

  • the Conduct of Business sourcebook (COBS);
  • Senior Management Arrangements, Systems and Controls (SYSC);
  • the Client Assets sourcebook (CASS);
  • the Decision Procedures and Penalties manual (DEPP); and
  • the Enforcement Guide (EG).

Through this Consultation Paper, with the help of firms and market participants, the European Commission is aiming to achieve a number of overreaching objectives. Namely:

  • to strengthen investor protection
  • to reduce the risks of a disorderly market
  • to reduce systemic risks, and
  • to increase the efficiency of financial markets and reduce unnecessary costs for participants.

Firms are invited to submit feedback on the proposals in the Consultation Paper and on a number of specific questions, which are listed in the Consultation Paper, by 8 March 2016. The FCA will consider Firms’ feedback and publish its revised rules in a Policy Statement in the first half of 2016.

To view the full CP 15/43 Consultation Paper and find more information on where to submit your comments, please follow this link.

Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.


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