The European Securities and Markets Authority has made a public statement on the joint work plan of ESMA and national regulators for opinions on pre-trade transparency waivers and position limits under the revised Markets in Financial Instruments package. MiFID II will apply from January 3, 2018.

MiFID II introduces a new position limit regime for commodity derivatives. National regulators will be required to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits will apply to the size of a position that a person can hold. Position limits set by a national regulator must be confirmed in an opinion issued by ESMA.

The pre-trade transparency obligations require market operators and investment firms operating a trading venue to make public current bid and offer prices and the depth of trading interests at those prices which are advertised through their systems for equity and non-equity financial instruments.

Read more.

The Financial Conduct Authority has devoted the September 2017 issue of its Market Watch newsletter to a discussion of aspects of FCA reporting functionality and the means by which firms can meet their reporting obligations under MiFID II from January 3, 2018. Market Watch issue 53 provides details of: (i) the requirement for firms subject to MiFID II transaction reporting obligations (and their eligible clients) to have a Legal Entity Identifier and what firms need to do to obtain one; (ii) how firms can apply to become a submitting entity to make submissions of market data via the FCA's Market Data Processor; (iii) the requirements external users will need to meet to be able to request extracts of transaction reports from the FCA via the MDP entity portal, which goes live on January 3, 2018; (iv) the ways in which operators of trading venues and investment firms can fulfill their market data reporting obligations by using outsourcing arrangements with third parties; and (v) clarification that Systematic Internalisers must submit instrument reference data to the FCA for financial instruments where the underlying instrument is a financial instrument traded on a trading venue, or an index or a basket composed of financial instruments traded on a trading venue.
 

View FCA Newsletter (Market Watch Issue 53).

The Financial Conduct Authority has issued a press release informing firms that applications to the regulator for authorization or variation of permission in time for MiFID II implementation are now urgent. The FCA has previously issued statements warning that firms requiring either new authorization or a variation to existing permissions needed to submit applications to the FCA by July 3, 2017, and that any submissions made after that date ran the risk that the FCA would not be able to determine the application in time for January 3, 2018.
 
The FCA considers that it has made good progress. However, any firms that have not yet submitted applications, or that have been contacted by the FCA for more information on a submitted application, must act without delay. Firms that have not yet submitted complete applications for new permissions must now also include contingency plans to allow for the possibility that permissions may not be in place by January 3, 2018. 
 
The press release also highlights that some proprietary traders which are not currently authorized may need authorization under MiFID II, for example, proprietary traders that access trading venues by means of direct electronic access (DEA) provided by a regulated firm or which engage in algorithmic trading. Firms that provide DEA have a duty under MiFID II to carry out due diligence on their prospective DEA clients and the FCA suggests that these firms work closely with their clients to ensure they are aware of the potential need to be authorized.
 
View the Press Release.
 
View Client Briefing: Deadline Looms for Regulated Firms to Vary Their Permissions to Comply With MiFID II.
 

The European Commission has published a Report to the European Parliament and the Council recommending that Exchange-Traded Derivatives (ETDs) do not need to be excluded from the scope of the provisions of the Markets in Financial Instruments Regulation that provide for open and non-discriminatory access to CCPs and to trading venues.

Read more.

The Financial Conduct Authority has launched a consultation on changes to its client money rules (CASS 7) to amend the existing 30-Day Rule under which firms are prevented from placing client money in bank accounts with unbreakable terms of longer than 30 days. The FCA introduced the 30-Day Rule in July 2014 to restrict the practice of some firms of depositing client money in unbreakable deposits for periods of up to years. The placing of client money in lengthy unbreakable terms attracts the risk of diminution if a firm is unable to withdraw that money in response to market events and the risk that client money may not be available for distribution in the case of a firm insolvency. Therefore, the FCA was (and remains) of the view that placing client money in unbreakable deposits for long periods is incompatible with the purpose of the client money regime. However, it is now proposing to allow the use of 31-90 day unbreakable deposits following feedback from firms about an increasing reluctance of banks to provide 30-day unbreakable deposits.

The reduced appetite from banks appears to have arisen due to the interaction between the 30-Day rule and the liquidity requirements of the prudential regime. All client money is subject to the Liquidity Coverage Ratio which requires banks to have highly liquid assets to cover 100% of their potential net cash outflows over 30 days. Unbreakable deposits of a maximum of 30 days are therefore capital inefficient.

Read more.

The European Securities and Markets Authority has published a document formalizing a common standard and procedure for national regulators to follow when reporting to ESMA the details of the circuit breakers and trading halts used by the trading venues in their jurisdiction. This will assist national regulators with their MiFID II obligations to report to ESMA the details provided to them by trading venues operating in their territory. The common standard and procedure is designed to ensure consistency and comparability of reported parameters.

View the Procedure and Template.

The European Securities and Markets Authority has published three Opinions setting out sector-specific principles for Brexit-related relocations in the sectors of investment management, investment firms and for secondary markets. These sector-specific Opinions build on a cross-sector Opinion published in May 2017. The principles do not set out any new legal requirements, but they are intended to serve as practical tools to support supervisory convergence among national regulators in EU27 countries when approached by UK market participants seeking to relocate in the content of the UK's exit from the EU. The Opinions have been published in the wake of reports that some member state regulators have been marketing their jurisdictions as locations for business and it has been thought that some regulators may have been offering a lighter-touch form of regulatory and especially "presence" standards than others.

The Opinions, which assume (without prejudice to ongoing negotiations) that the UK will become a third country on exit from the EU, highlight particular issues national regulators in EU27 should consider when considering applications from relocating market participants. Factors for close consideration include governance structure and internal control, the impact and influence of group membership, the nature and extent of proposed outsourcing arrangements and the need to mitigate the risk of letter-box entities. ESMA also recommends that national regulators consider co-operation arrangements with third country regulators where appropriate.

View Opinion on Investment Firms.

View Opinion on Investment Management.

View Opinion on Secondary Markets.

The European Securities and Markets Authority has published for consultation draft Guidelines to enhance clarity and foster convergence in the implementation of certain aspects of the MiFID II suitability requirements. Whilst the requirements for firms offering financial advice or portfolio management to assess the suitability of products for their clients are not new, MiFID II's provisions enhance and strengthen the MiFID I requirements. ESMA has therefore built on the suitability Guidelines it issued in 2012, with clarifications, refinements and updates where necessary to reflect the MiFID II provisions. Annex IV to the consultation paper contains a correlation table between the proposed draft Guidelines and the corresponding 2012 Guidelines. The proposed draft Guidelines also take into account the results of supervisory activities conducted by national regulators on the application of suitability requirements as well as the technological evolution of the advisory markets (for example automated advice) and recent studies on behavioural finance.

ESMA invites comments on the draft Guidelines by October 13, 2017. It expects to publish a final report and final Guidelines in Q1/Q2 2018.

View the consultation paper.

The European Securities and Markets Authority has published proposed amendments to its Regulatory Technical Standards under the European Markets Infrastructure Regulation, following a public consultation between December 2016 and February 2017. ESMA provided final draft RTS to the European Commission in 2012 specifying the frequency and the details of the information to be made available by Trade Repositories to the relevant authorities and the information to be published by TRs. The RTS also specified the operational standards required to aggregate and compare data across TRs and for the relevant authorities to have access to information as necessary.

Read more.

The Financial Conduct Authority has published the final report of the Asset Management Market Study it launched in November 2015. The object of the AMMS was to investigate three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. Furthermore, the FCA wanted to look at whether there are any barriers to innovation that prevent investors from obtaining better results. The FCA published an interim AMMS report in November 2016 which set out the FCA's provisional assessment of the way competition works for asset management services, the consequences for investors and the FCA's proposed remedies to tackle the issues.

The final AMMS report confirms the FCA's interim findings and proposes a package of remedies. The FCA has divided the remedies into three buckets: (i) remedies on which it has published a consultation alongside the final report; (ii) final remedies; and (iii) remedies on which it intends to consult later.

Read more.

The Financial Conduct Authority has published the results of a review into the suitability of advice and quality of disclosure in the financial services sector.

Read more.

The European Securities and Markets Authority has published a follow-up report analyzing the actions taken by ten national regulators to address their inadequate application of ESMA's good practices on applying the rules on the provision of fair, clear and not misleading information by regulated firms to clients under the Markets in Financial Instruments Directive. ESMA's assessment forms part of its preparation for the implementation of the MiFID II rules which come into effect on January 3, 2018.

The assessment used the same criteria as the original peer review: (a) organisation; (b) supervisory approach; (c) monitoring; (d) thematic work; and (e) complaints. Of the ten regulators, those in Lithuania, Lativia, Malta, Poland, Portugal and Romania had addressed all the deficiencies previously identified. For the remaining four, Denmark, Estonia, Greece and Cyprus, deficiencies remain, although ESMA has welcomed the efforts made to address them.

View the Report.

The Prudential Regulation Authority has published a second Policy Statement and final rules implementing certain aspects of the Markets in Financial Instruments legislative package.

Read more.

The European Securities and Markets Authority has published Guidelines on the calibration of circuit breakers and the publication of trading halts under the revised Markets in Financial Instruments Directive. MiFID II requires regulated markets temporarily to halt or constrain trading if there is a significant price movement in a financial instrument (equity, equity-like and debt instruments) on that market or a related market in a short period. Regulated markets must also, in exceptional cases, cancel, vary or correct any transaction. ESMA is required to develop guidelines on the calibration of those trading halts, taking into account the liquidity of the different asset classes and sub-classes, the nature of the market model and types of users. The Final Guidelines outline further details on the parameters that trading venues should consider when calibrating their circuit breakers. ESMA emphasizes that consideration should be given not only to trading halts, but also order price collars. Trading venues should also immediately make public details of the activation of a trading halt, the type of trading halt, the trading phase in which it was triggered, the eventual extension and the end of the halt. National regulators have until two months from date of publication in all EU official languages to advise ESMA of whether or not they intend to comply with the final Guidelines.

View the Guidelines.

The European Securities and Markets Authority has published its Final Report and final draft Regulatory Technical Standards under the revised Markets in Financial Instruments Directive specifying the scope of the consolidated tape for non-equity products (i.e., bonds, structured finance products, emission allowances and derivatives).

Under MiFID II, consolidated tape providers will collect post-trade information published by trading venues and approved publication arrangements (APAs) and consolidate this into a continuous live data stream made available to the public, both for equity instruments and non-equity products. Given the additional complexity involved in providing a non-equity consolidated tape, the relevant MiFID II provisions for the non-equity tape will not enter into effect until September 3, 2019.

The draft RTS will amend the existing Delegated Regulation 2017/571 (previously RTS 13) on authorization, organizational requirements and the publication of transactions for data reporting services providers, which sets out the scope of the equity tape, by adding provisions:

• permitting non-equity consolidated tape providers to specialize in one or more asset classes to increase the likelihood of a viable business case for non-equity consolidated tape provision; and
• specifying the APAs and trading venues that have to be included in the non-equity consolidated tape based on the required consolidated tape coverage ratio of 80% of all transactions published in an asset class in the EU.

The final draft amending RTS have been provided to the European Commission which has three months to decide whether to endorse the draft RTS.

View ESMA's press release.

The Financial Conduct Authority has published its first Policy Statement on Markets in Financial Instruments Directive II Implementation. The Policy Statement sets out near final rules in the areas consulted on in previous consultation papers, covering, requirements for Regulated Markets, Multilateral Trading Facilities, Organised Trading Facilities, Systematic Internalisers, transparency, market data, algorithmic and high frequency trading requirements, passporting and branches of non-European Economic Area (EEA) firms, Principles for businesses, rules relating to commodity derivatives, supervision, prudential rules, systems and controls, including remuneration and whistleblowing and fees.

It also covers a small number of issues relating to the use of approved reporting mechanisms and the new authorisation category of data reporting service providers and an update on the FCA's proposals for recording of telephone conversations.

In June, the FCA plans to finalize the MiFID II rules in a further policy statement. This will cover remaining issues which include conduct of business, perimeter guidance and client asset protections.

The FCA stated that it does not intend to substantively amend the rules published in the Policy Statement prior to their entry into force. Firms impacted by the changes to the activities and instruments covered by MiFID II should now apply for authorization or for variations of permission, in order to continue being able to operate in the UK after January 3, 2018, when MiFID II takes effect.

View the Policy Statement and related webpage.

The Financial Conduct Authority has published its fifth Consultation Paper on the Markets in Financial Instruments Directive II Implementation. The consultation deals with changes to the FCA's decision procedure and penalties manual (DEPP) and the enforcement guide (EG), consequential and miscellaneous changes to the FCA Handbook and new guidance on the use of third parties where firms are required to provide financial instrument reference data or commodity derivative position reports to the FCA. It also sets out the FCA's proposals for new conduct rules dealing with the non-MiFID business of occupational pension scheme firms.

The proposals will affect a wide range of authorized firms, recognized bodies and unregulated entities trading commodity derivatives. In particular, it will be of interest to banks, investment firms, recognized investment exchanges, Multilateral Trading Facilities, prospective Data Reporting Service Providers and occupational pension scheme firms.

Comments on the proposals relating to DEPP, EG and consequential changes to the Handbook are due by May 12, 2017. The FCA intends to publish the final rules for these areas in its June policy statement. Comments on the proposed conduct rules for occupational pension scheme firms are due by June 23, 2017. The final rules for these areas will be published in a later policy statement.

View the Consultation Paper and related webpage.

View the online response form.

Level II legislation under the revised Markets in Financial Instruments Directive was published in the Official Journal of the European Union. The legislation published includes 26 Regulatory Technical Standards, two Commission Delegated Regulations and one Commission Delegated Directive. The legislation will enter into force on April 20, 2017.

The Official Journal publication is available here.

The Financial Conduct Authority published a statement on the use of dealing commission by investment management firms, including asset managers and wealth managers. The FCA conducted a review of firms' practices from 2012 and 2015 and found that the majority of firms are falling short of the FCA's rules and expectations on their use of dealing commission. Some firms have made improvements and the result has been a reduction in dealing commission spent on research and better investment performance for their consumers. The FCA intends to continue focusing on the use of dealing commission, in particular during the implementation of MiFID II which applies from January 3, 2018. Where the FCA identifies a breach of the requirements, it will take appropriate action, including referring firms, individuals or practices for further investigation.

View the FCA's statement.

The Financial Conduct Authority published a statement on best execution compliance by investment firms. The statement sets out the FCA's findings from supervisory work on how investment managers deliver best execution for their clients. Best execution refers to the requirement on firms to obtain the best possible result for their clients when executing client orders. The FCA has found that many firms have not conducted a robust gap analysis since 2014 and have not addressed the issues highlighted in the FCA's thematic review on best execution and payment order flows (published in 2014). The FCA stated that it expects firms to take into account the findings in its thematic review as well as the asset management market study. The FCA intends to reconsider best execution in 2017 and will assess the steps that firms have taken to address gaps in achieving compliance with best execution requirements and how firms are intending to show that funds and client portfolios are not paying too much for execution. The FCA will consider taking further action against firms and/or individuals where best execution obligations are not being fulfilled.

In January 2017, the European Securities and Markets Authority stressed the importance of continued efforts to reach a high level of supervision with regards to best execution requirements, and urged national regulators to make every effort to ensure that firms would be compliant with the revised best execution requirements under MiFID II. MiFID II applies from January 3, 2018.

View the FCA's announcement.

View the FCA's thematic review on best execution and payment order flows.

View the FCA's asset management market study.

View ESMA's follow-up report.

The European Securities and Markets Authority has published a final report and final draft Regulatory Technical Standards on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. The legislation delaying the implementation of the MiFID II package also revised MiFIR to specifically require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is no liquid market (unless there is a liquid market for the package order as a whole).

Read more.

HM Treasury published its response to its late 2016 consultation on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of "investment advice" set out in the Markets in Financial Instruments Directive. HMT is proceeding with the change as consulted on and will lay draft legislation before Parliament to give effect to the change. The Financial Conduct Authority published a statement about the change, setting out what the change will mean for firms advising on investments or providing a personal recommendation.

Read more.

The European Securities and Markets Authority published a letter, dated February 1, 2017, from it to the European Commission about the potential for loopholes to be exploited in the revised Markets in Financial Instruments package, known as MiFID II. MiFID II comes into effect on January 3, 2018. Part of the aim of MiFID II is to close some of the loopholes that were identified in the existing MiFID I legislation, including by ensuring that investment firms that operate internal matching systems and execute client orders on a multilateral basis become authorized as a trading venue. ESMA expresses the concern that certain investment firms that currently operate broker-crossing networks might seek to circumvent the provisions of MiFID II by setting up networks of interconnected systematic internalisers. ESMA commits itself to monitoring developments closely and states that it may consider clarifying the scope of the permitted activities of SIs as well as the characteristics of multilateral systems via Q&As. ESMA requests the Commission to consider whether it should adopt any legislation that might further clarify the definitions and concepts in MiFID II to prevent the loophole being exploited. 

View the letter. 

HM Treasury published a paper summarizing responses to its consultation on the transposition of the revised Markets in Financial Instruments Directive and three draft statutory instruments to facilitate transposition. Member States are required to adopt measures transposing MiFID II by July 3, 2017 and to apply the provisions from January 3, 2018. HM Treasury consulted on MiFID II transposition in March 2015 and sought feedback on draft legislation to facilitate transposition and its proposed policy approach to access for third country firms, data reporting services, position limits and reporting, unauthorised persons, structured deposits, the power to remove board members, organised trading facilities and binary options. Most respondents broadly agreed with the proposed measures for transposition. However, further guidance has been provided on numerous aspects of the proposed legislation. Since the consultation, a number of further issues in MiFID II requiring further legislative amendments as part of transposition have been identified and are included in the draft legislation and detailed in the report. HM Treasury notes that despite the UK voting to leave the EU, until exit negotiations are concluded, the UK remains a full member of the EU and must comply with MiFID II accordingly. 
 

The European Securities and Markets Authority published revised final draft Implementing Technical Standards on the format of position reports by market operators and investment firms. The revised Markets in Financial Instruments Directive requires national regulators to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits will apply to the size of a position that a person can hold, including any other positions held on behalf of that person by group entities. Market operators and investment firms will be subject to certain position reporting requirements. The position reporting regime is intended to support the application and enforcement of position limits.

ESMA has revised the ITS that it submitted to the European Commission for endorsement in December 2015 because of difficulties experienced in implementing the original ITS in practice. Among other things, the revised ITS remove the obligation for positions to be reported gross. ESMA has submitted the revised ITS to the European Commission for endorsement. The MiFID II package will apply from January 3, 2018. 

View the revised ITS.

The Financial Conduct Authority published a guide on applications and notifications under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, together the MiFID II package. MiFID II will apply from January 3, 2018. It will introduce, among other things, new processes and forms for authorizing investment firms and new activities, such as operating an Organised Trading Facility. It will also require notifications to be made to the FCA. The FCA's guide covers applications for investment firm authorizations, new data reporting service providers authorizations, recognition of investment exchanges and variation permission as well as the notifications required by authorized firms and exchanges, including passporting notifications. 

In particular, investment firms should note that the FCA will be using new forms for authorizations and variation of permission for investment services and activities from January 30, 2017, and the new passporting notifications from July 31, 2017. All applications for authorization of investment firms and DRSPs or variation of permission must be submitted by July 3, 2017 to allow the FCA time to assess the applications before the MiFID II implementation date. Passporting notifications must be submitted by December 2, 2017 so that the FCA can send them to other EU regulators before January 3, 2018. 

The information in the guide is currently up to date. The FCA intends to provide updates on processes for applications and notifications, where necessary, through its website. 

View the guide.

The European Securities and Market Authority published an Opinion on the scope of the product intervention powers under the Markets in Financial Instruments Regulation. The Opinion focuses on the impact of the exclusion for fund managers from the scope of the MiFIR intervention powers. MiFIR gives national regulators the power to temporarily prohibit or restrict the marketing, distribution or sale of certain financial instruments (such as units or shares in Undertakings in Collective Investment in Transferable Securities or Alternative Investment Funds) in the EU by investment firms and banks, whether the UCITS or AIF is internally or externally managed, or financial instruments with certain specified features or a type of financial activity or practice. The intervention power only applies to banks authorized under the Capital Requirements Directive and to investment firms authorized under the revised Markets in Financial Instruments Directive (known as "MiFID Firms"), when providing investment services and/or performing investment activities and to market operators including any trading venues they operate. The intervention powers will apply from January 3, 2018, in accordance with the application date of MiFIR.

Read more. 

The European Securities and Markets Authority published a follow-up report to the 2015 peer review on best execution. The Markets in Financial Instrument Directive requires investment firms to provide best execution for their clients when executing their clients' orders. ESMA conducted a peer review on how national regulators supervised and enforced the requirements in 2011 and 2012 and published the results in February 2015, recommending, amongst other things: (i) prioritization of best execution by national regulators; (ii) the allocation of supervisory resources; and (iii) the adoption of a proactive approach to monitoring compliance with best execution requirements, including through onsite inspections. In 2016, ESMA began to assess whether national regulators had taken steps to address the shortcomings identified in the peer review. The 2017 report shows that national regulators are being more proactive in their supervision of best execution. However, there are still some deficiencies that need to be addressed as some national regulators were not able to show progress in relationship to deficiencies previously identified. ESMA's view is that regular and proactive supervision and monitoring of compliance with the best execution requirements is the only way to ensure investor protection in this area. Firms will continue to be subject to best execution requirements when the MiFID II package comes into effect on January 3, 2018 and ESMA urges national regulators to act to ensure that there is compliance with best execution requirements by investment firms.

View ESMA's 2017 follow-up report.

View the 2015 peer review report.

The Financial Conduct Authority published its fourth consultation paper on the implementation of the revised Markets in Financial Instruments Directive in the UK. MiFID II regulates retail and wholesale investment business. The consultation covers technical matters that were outside the scope of previous consultations and includes proposed changes to the FCA Handbook on specialist regimes, tied agents, market data, SME growth markets and transitional fees. 

The FCA is proposing to update section 18 of the Conduct of Business sourcebook of the Handbook by updating cross-references to correspond to the FCA's proposed changes to other sections of COBS. COBS 18 contains a number of tailored conduct regimes covering both MiFID and non-MiFID business, for specialist types of designated investment business. 

The FCA is proposing amendments to Handbook rules on appointed representatives to reflect the technical changes in MiFID II and the tied agents regime. The proposals are particularly relevant to firms undertaking MiFID or equivalent third country business. Under MiFID II, all Member States will be required to maintain tied agents regimes, whereas they currently have an option as to whether to do so. As a result, the FCA is seeking to clarify the territorial application of the appointed representative rules. MiFID II also changes the scope of permitted activities relating to structured products for tied agents and the FCA is proposing to introduce new definitions of “MiFID optional exemption AR” and “structured deposit AR”. The new terms will define the new populations of authorised representatives to which MiFID tied agent requirements will also apply.

Read more.

The Fixed Income, Currency and Commodities Markets Standard Board published guidelines on surveillance and training in wholesale markets. The guidance is outlined in the FMSB's Statement of Good Practice for Surveillance in Foreign Exchange Markets and Statement of Good Practice for Conduct Training. The Statement of Good Practice for Surveillance highlights the FMSB's Core Principles that firms should consider in advance of designing and implementing their surveillance measures in the foreign exchange markets, such as ensuring that: (i) the surveillance function is independent of front office; (ii) there are effective governance controls; and (iii) there is a regular review of surveillance systems to ensure that they are fit for purpose given the element of constant change in risk. It also identifies emerging practices to combat the risk of insider dealing and market manipulation, including the use of automated voice surveillance systems using techniques such as Natural Language Processing.

Read more.

The Financial Conduct Authority published a consultation paper setting out its proposals to enhance the conduct of business rules for firms providing contract for difference products to retail clients and to limit the risks of CfDs for retail clients. The FCA is proposing to change its current rules because of increasing evidence of poor conduct by relevant firms and risks posed to retail customers. Amongst other things, the FCA is proposing to require all CfD firms to provide a standardized risk warning and mandatory profit-loss disclosures, to impose lower leverage limits for inexperienced retail clients (i.e. those with less than 12 months of active trading experience) and higher leverage limits for experienced retail clients, and to prohibit bonus and account opening promotions for their retail CfD products and platforms. 

The FCA also sets out its policy proposals for the regulation of binary bets. Binary bets are expected to be brought within the UK regulatory perimeter as part of the UK implementation of the revised Markets in Financial Instruments Directive. The FCA is considering its policy approach for the protection of retail clients in relation to binary bets and is seeking feedback on its approach before it consults on formal proposals. 

The consultation closes on March 7, 2017. The FCA expects to publish a Policy Statement and final rules in Q2 2017, with the expectation that the rules will come into force shortly afterwards. 

View the consultation paper. 

The Commission adopted Regulatory Technical Standards supplementing the revised Markets in Financial Instruments Directive, setting out when an activity is “ancillary” to a firm’s main business. MiFID II provides an exemption from the requirement for authorization as an investment firm when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business on a group basis and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive. Adoption of the RTS follows the consultation by the European Securities and Markets Authority on the draft RTS. The Commission proposed changes to ESMA's final draft RTS, which was submitted on September 28, 2015, including a capital test to distinguish a group’s main activates from its ancillary activities. The Commission requested a methodology to specify the allocation of capital between the main business activity and the ancillary activity to enable groups to demonstrate, based on the capital employed, where the group’s main business activity resides. On May 30, 2016, ESMA responded by way of formal opinion and revised draft RTS. Rather than a single capital based methodology, ESMA proposed five options for speculative trading and three for a group’s main activity. ESMA did not stipulate which of the options was to be preferred and did not specify a threshold for determining the percentage of speculative trading by a group‘s main activity that would trigger the requirement for authorization under MiFID II. 

Read more.

The Prudential Regulation Authority launched its second consultation on implementing certain aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The consultation relates to requirements for a firm's management body and organizational requirements as well as to the new regulated activity of operating an Organised Trading Facility and the new financial instrument of "emission allowances" and structured products. The PRA consulted on its approach to passporting and algorithmic trading earlier in 2016 and has published its final rules for those areas. The PRA will consult on other aspects related to MiFID II in due course.

Read more. 

Regulatory Technical Standards on the required information for registration of third country firms and the format of information provided to clients was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation on the provision of services and performance of activities by third country firms following an equivalence decision with or without a branch. The RTS specifies the information necessary for registration with the European Securities and Markets Authority. The RTS requires firms to update ESMA, within 30 days, of any changes to the information provided in its application.  MiFIR requires third country firms, before providing investment services for clients in the EU, to inform such clients that they are not permitted to perform services for clients other than eligible counterparties and professional clients within the definition of the revised Markets in Financial Instruments Directive and, furthermore, that they are not subject to supervision in the EU. The RTS provides that the notice must be provided in a “durable medium” (which includes electronic media); such that, amongst other things, it is in English or the in the official language, or one of the official languages, of the Member State where the services are to be provided. 

View the RTS on application by third country firms for permission to provide investment services.

Regulatory Technical Standards on access in respect of benchmarks was published in the Official Journal of the European Union. The RTS supplement the Markets in Financial Instruments Regulation. MiFIR provides for non-discriminatory access to benchmarks for the purposes of clearing and trading for central counterparties and trading venues. This includes access to the licenses of, and information relating to, benchmarks which are used to determine the value of some financial instruments for trading and clearing purposes. The RTS specifies that a person with proprietary rights to a benchmark must, upon request, make available to CCPs and trading venues the information necessary to perform their clearing or trading functions. For CCPs, the functions include the appropriate risk management of relevant open positions in exchange-traded derivatives, including netting, and compliance by the CCP with its obligations under the European Market Infrastructure Regulation. For trading venues, such functions include the initial assessment of the characteristics of the benchmark, the marketing of the relevant product and the support of the price formation process for the contracts admitted or being admitted to trading. The RTS state that the provision of price and data feeds must include the feed of the benchmark’s values and the prompt notification of any inaccuracy in the calculation of the benchmark values and of the updated or corrected benchmark values.  The RTS also sets out general conditions on the provision of information through licensing and the minimum conditions that a benchmark owner must set for licensing agreements. 

Read more.

The Financial Conduct Authority published an interim report following its Asset Management Market Study. As per The Terms of Reference, the FCA investigated three core areas: (i) how asset managers compete to deliver value; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) how investment consultants affect competition for institutional asset management. The FCA also looked at whether there are any barriers to innovation that prevent investors from obtaining better results.

The FCA found that, based on the evidence produced, a weak price competition exists in a number of areas of the asset management industry. The lack of competition has a material impact on the investment returns of investments as a consequence of their payments for asset management services. The FCA reviewed product development and innovation in the asset management market and concluded that there is some evidence of innovation and limited evidence of any significant structural or regulatory barriers to entry. The FCA is of the view that despite the interim finding raising concerns about how effectively competition drives value for investors in the asset management sector, there are also some competitive pressures building in parts of the market and this is likely to continue. 

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The European Securities and Markets Authority launched a consultation on pre-trade transparency rules for package orders under the Markets in Financial Instruments Regulation. Package transactions are transactions executed by investment firms, either on their own account or on behalf of clients, which are made up of a number of interlinked, contingent components. Their aim is to reduce transaction costs and assist in risk management. When the legislation delaying the implementation of the MiFID II package was published, MiFIR was revised specifically to require public disclosure of bid and offer prices for package orders. Definitions for package orders and package transactions were also added. National regulators are able to waive the obligation for package orders which meet certain conditions, such as where the package order includes a financial instrument for which there is not a liquid market (unless there is a liquid market for the package order as a whole).

ESMA is required to prepare draft Regulatory Technical Standards by February 28, 2017, setting out the methodology for determining the package orders for which there is a liquid market. ESMA is required to assess whether packages are standardized and frequently traded in preparing the RTS.

ESMA's consultation paper considers the treatment of packages for transparency purposes, taking into account the pre-trade transparency regime for package orders in the EU and the US and sets out ESMA's proposed methodology for determining package orders for which there is a liquid market. The consultation closes on January 3, 2017. ESMA will finalize the draft RTS for submission to the European Commission by the end of February 2017.

View the consultation paper.

The European Banking Authority and the European Securities and Markets Authority launched a joint consultation on proposed Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders. The revised Markets in Financial Instruments Directive and the Capital Requirements Directive require firms to assess the suitability of members of their management body. Firms subject to CRD must all assess the suitability of all key function holders that have a significant influence over the direction of the firm. The proposed Guidelines provide criteria for assessing the individual and collective knowledge, skills, experience, reputation, honesty, integrity and independence of members of the management body. The proposed Guidelines also include a framework for assessing whether individual members of management commit sufficient time to performing their duties, set out how diversity should be taken into account in the selection process for members of the management body and provide for appropriate financial and human resources to be allocated to induction and training.

View the consultation paper.

The Prudential Regulation Authority published its final rules for transposing passporting and algorithmic trading aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA also published its responses to the feedback it received on its proposed rules which were included in the consultation paper published on March 24, 2016.

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The European Securities and Markets Authority issued detailed reporting instructions and XML schema under its Financial Instruments Reference Data System. FIRDS covers the requirements under both the Markets in Financial Instruments Regulation and the Market Abuse Regulation for reference data collection, transparency reporting obligations, submission of the Double Volume Cap data and the transaction exchange reporting mechanism.

View ESMA's announcement.

The European Securities and Markets Authority published a Final Report providing its responses to the feedback on the proposed Guidelines on transaction reporting, order record keeping and clock synchronization under the MiFID II package. The final Guidelines were also published. The MiFID II package, which comprises the Markets in Financial Instruments Regulation and the revised Markets in Financial Instruments Directive as well as the related technical standards, imposes transaction reporting and order record keeping obligations on investment firms, approved reporting mechanisms, trading venues and systematic internalizers. The Guidelines focus on the preparation of transaction reports and order data records for various scenarios and aim to harmonize across Member States the approach to compliance with the MiFID II requirements. The Guidelines also include examples for reporting specific financial instruments with a focus on derivatives and provide further clarification on specific legislative provisions in the MiFID II package, on terms such as “reportable events” and “gateway-to-gateway latency”.  The Guidelines will apply from January 3, 2018 in line with the application date of the MiFID II package.

View ESMA's Final Report and final Guidelines.

The European Securities and Markets Authority published draft Guidelines on trading halts by regulated markets under the revised Markets in Financial Instruments Directive. MiFID II requires regulated markets to temporarily halt or constrain trading if there is a significant price movement in a financial instrument (equity, equity-like and debt instruments) on that market or a related market in a short period. Regulated markets must also, in exceptional cases, cancel, vary or correct any transaction. ESMA is required to develop Guidelines on the calibration of those trading halts, taking into account the liquidity of the different asset classes and sub-classes, the nature of the market model and types of users. ESMA is also proposing Guidelines, at its own initiative, which set out how trading halts should be communicated to market participants and other venues and on the procedure and format of submissions by regulated markets to national regulators setting out the parameters for halting trading. The Guidelines will apply to national regulators, trading venues (regulated markets, MTFs and OTFs) and all trading systems allowing or enabling algorithmic trading. The consultation closes on December 6, 2016. ESMA intends to finalize the Guidelines in Q1 2017.

View the consultation paper. 

The European Securities and Markets Authority published draft Guidelines on the target market assessment for the new product governance requirements in the revised Markets in Financial Instruments Directive. The product governance requirements require firms which manufacture and distribute financial instruments and structured deposits to act in their clients’ best interests during all the stages of the life-cycle of products or services. The requirements in MiFID II were further specified in secondary legislation which was adopted by the European Commission in April 2016. ESMA's proposed Guidelines focus on the ‘target market assessment’, which has been identified as the most important for achieving consistent application of the product governance requirements across the EU. 

The proposed Guidelines set out, amongst other things, the determination of the potential target market by the manufacturer or distributor in terms of categories to be considered and differentiation on the basis of the nature of the product manufactured or distributed, regular reviews to assess whether products and services are reaching the target market and the distribution of products manufactured by entities not subject to the MiFID II product governance requirements by MiFID II distributor firms. ESMA has also included practical examples and case studies on the application of certain aspects of the proposed Guidelines. The consultation closes on January 5, 2017. ESMA will consider the feedback it receives and intends to publish a final report in Q1 or Q2 2017. 

View the consultation paper.

The European Securities and Markets Authoritypublished draft Guidelines on the requirements for the management body of market operators and Data Reporting Services Providers respectively. The revised Markets in Financial Instruments Directive requires all members of the management body of any market operator to be of sufficiently good repute, possess sufficient knowledge, skills and experience to perform their duties, to commit sufficient time to perform their functions and to act with honesty, integrity and independence of mind. Market operators must also promote diversity and allocate adequate human and financial resources to the induction and training of the management body. Similar requirements are placed on the management body of DRSPs but DRSPs are not required to promote diversity and allocate adequate human and financial resources to the induction and training of the management body.

The proposed Guidelines will apply to the management body of market operators which are the individuals who operate a regulated exchange and to DRSPs. Investment firms operating a multilateral trading facility, an organized trading facility or banks operating a trading venue will not be subject to the proposed Guidelines. Instead the management bodies of operators of these other types of trading venues will be subject to separate Guidelines developed under other provisions of MiFID II and the Capital Requirements Directive which ESMA and the European Banking Authority are expected to consult on soon. The consultation closes on January 5, 2017. ESMA will consider the feedback it receives and intends to publish a final report in Q1 or Q2 2017.

View the consultation paper. 

The European Securities and Markets Authority published a consultation paper containing draft Regulatory Technical Standards specifying the scope of the consolidated tape for non-equity financial instruments under the Markets in Financial Instruments Directive II. The RTS on the scope of tape for equity instruments was previously endorsed by the European Commission on June 2, 2016. ESMA's proposed draft RTS will amend the endorsed RTS on the equity consolidated tape by adding a list of non-equity asset classes that are to be included in the CTP electronic data stream. The list includes classes of bonds (excluding exchange traded commodities and notes), structured finance products, securitized derivatives, interest derivatives, foreign exchange derivatives, contracts for differences and emission allowances.

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The Financial Conduct Authority launched its third consultation on the implementation of the revised Markets in Financial Instruments Directive in the UK. The consultation paper is split into two parts. The first part is on conduct of business requirements and covers topics such as inducements, research, client categorization, disclosure requirements, independence, dealing and managing, suitability, appropriateness and investment research. The second part covers a range of issues such as product governance, supervision and authorization, knowledge and competence requirements and perimeter guidance. 

The FCA's conduct of business proposals follow on from its Discussion Paper published last year which covered two general issues: whether the MiFID II conduct rules should apply to insurance-based investments and pensions and whether the MiFID II rules applicable to the activities of advising on or selling structured products should be incorporated into the FCA's Conduct of Business sourcebook. On the first issue, the FCA has decided to wait until EU implementing measures under the Insurance Distribution Directive are finalized before it sets out its proposals. The FCA is intending to consult on implementing the IDD in 2017. On the second issue, the FCA has decided to proceed with incorporating such MiFID II rules into the Conduct of Business sourcebook. The FCA is proposing to apply individual conduct rules to those activities, which is in line with the provisions in MiFID II. 

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The European Securities and Markets Authority published a discussion paper on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading on at least one trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. ESMA is required to prepare Regulatory Technical Standards setting out which derivatives (or a subset of derivatives) that have been declared subject to the clearing obligation (currently comprising only certain interest rate swaps and credit default swaps) will also be subject to the trading obligation and the date on which the obligation will take effect. ESMA is seeking feedback on its approach to implementing the trading obligation for derivatives, including its application to certain types of counterparties and the possibility of the obligation being phased in, and on its initial assessment of some classes of derivatives that might become subject to the obligation. The discussion paper also sets out how the trading obligation has been implemented in other jurisdictions, such as the US, Japan, Switzerland, Mexico, Argentina and China. 

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HM Treasury published a consultation paper on amending the definition of regulated advice under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to bring it in line with the definition of “investment advice” set out in the Markets in Financial Instruments Directive. The consultation follows the Financial Advice Market Review, conducted by HM Treasury and the Financial Conduct Authority last year, which assessed how consumers could access advice on their finances more easily. The FAMR recommended that the government should consult on amending the definition of regulated advice in accordance with the MiFID definition, to the effect that only advice which makes a personal recommendation would be regulated. The consultation proposes a revised definition and seeks feedback on the costs and benefits of this change and any potential risks by November 15, 2016.

View the consultation page.

The Financial Conduct Authority published a second consultation paper on implementation of the Markets in Financial Instruments Directive II and the associated proposed changes to the FCA Handbook. The first consultation paper, published on December 15, 2015, related to issues associated with the FCA’s regulation of the secondary trading of financial instruments. The proposals in the second consultation paper are relevant to many different firms, including investment banks, inter-dealer brokers, stockbrokers, investment advisers, corporate finance firms, trading venues, investment managers and prospective Data Reporting Services Providers. The Consultation Paper includes full implementation of relevant parts of MiFID II, consistent with FCA pronouncements that roll-out of MiFID II will not be affected by the Brexit vote.

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The European Commission adopted a Commission Delegated Regulation in the form of Regulatory Technical Standards supplementing the Markets in Financial Instruments Regulation. MiFIR will, from January 3, 2018, require an investment firm to report complete and accurate details of transactions in financial instruments no later than the close of the following business day to its national regulator. One of the purposes of the reporting obligation is for national regulators to undertake market surveillance, including to monitor for market abuse.

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