The Financial Conduct Authority is consulting on its third set of implementation proposals for MiFID II – as well as seeking views on the proposed related changes to the FCA Handbook.
What is MiFID II? – a recap
MiFID II is the revised Markets in Financial Instruments Directive.
It comes into effect on 3 January 2018, and aims to:
- Update and improve rules governing the way capital markets function
- Contribute to the reform of derivatives markets
- Strengthen transparency of trading
As a result, the regulator hopes that financial markets will be made 'more efficient, transparent and responsible'.
This Directive also strengthens the investor protection regime for retail and wholesale investment business.
The third consultation paper focuses particularly on conduct of business issues. Andrew Bailey, chief executive at the Financial Conduct Authority, said:
“Strengthening consumer protection is one of the key aims of MiFID II and this aligns with, and advances, our own statutory objectives. The changes to rules we are proposing today reflect key themes that we have worked on in both retail and wholesale markets over recent years to promote competition and market integrity.”
Will Brexit impact firms’ need to comply with the new Directive?
No – or at least not in the foreseeable future, according to the FCA.
Andrew Bailey reiterated the statement made following the EU Referendum result in June, that firms need to ‘continue to abide by their obligations under UK law including those derived from EU law. They must continue with implementation plans for legislation that is still to come into effect, of which MiFID II is one such example.’
What are the consultation paper’s key proposals?
Its main proposals centre around:
- Strengthening inducement and research rules to drive better competition and ensure research is only produced and consumed where it adds value to investment decisions.
- Implementing requirements of full disclosure of costs and charges.
- Guidance on the responsibilities of providers for the fair treatment of customers.
- Extending the requirement of telephone taping to financial advisers, with the aim of providing benefits to both firms and their clients in resolving disputes in a quick and cost effective manner.
What might these mean for the Compliance team?
For any firm currently meeting its Compliance obligations, it’s fair to say that much of the revised Markets in Financial Instruments Directive looks like ‘more of the same’.
- Full disclosure of costs and charges is already something the regulator is keen to see – as we covered in our recent blog on shortcomings in insurance renewal communications
- The fair treatment of customers is another theme the FCA returns to time and again, as our blog on the Treating Customers Fairly requirements
The requirement for financial advisers to tape their telephone calls is a new one, though, and one that may cause some work, particularly for smaller advisers.
Up to now, ‘real-time financial promotions’ (such as conversations or phone calls) have been subject to fewer governance requirements than ‘non-real time promotions’ (such as adverts, websites or brochures). You can read more on this in our blog on What constitutes a financial promotion.
This change ramps up the regulation of real-time promotions, and will have implications for IFAs and firms that use them as part of their distribution network.
How can people respond to the consultation?
The third consultation is open until 4 January 2017 – except for comments on Chapter 16 - Supervision manual, authorisation and approved persons, which need to reach the FCA by 31 October 2016.
Comments can be sent via an online response form on the regulator’s website, by email to firstname.lastname@example.org, or in writing to: MiFID Coordination, Markets Policy and International Division, Financial Conduct Authority, 25 The North Colonnade, London E14 5HS.
Successfully dealing with change in the world of Compliance
The revised Markets in Financial Instruments Directive is just the latest in a seemingly never-ending line of regulatory changes faced by Compliance teams.
If you want to find out more about how to embrace the challenges your role is facing, including the quickening pace of legislative change, you can download our whitepaper on The changing role of the Compliance Officer. It has tips on how to deal with your evolving role, and advice on tackling the challenges these changes bring. You can read a free copy here.