Compound Growth

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May 2017

Planning for MiFID II

The revisions to be implemented under MiFID II will have a significant impact on both business strategy and operational processes implemented by firms.

For firms affected by MiFID, although the challenges may in some cases be significant, those within these firms should also consider the opportunity this presents in offering reform and focus for their business and activities.

The majority of firms will have been preparing for the revised Directive over the last year or so, not least because MiFID II was originally due to be implemented at the start of 2017, but was later delayed by 12 months the start of 2018.

If your firm is yet to grapple the key areas of impact upon your business, you must do so now so that you can plan for change and be ready to implement when MiFID II becomes effective on 3rd January 2018.

All firms should now ensure they understand the changes MiFID II will bring and review how they will be affected. If you would like any support or assistance in preparing for the new requirements, please get in touch with our experienced regulatory consultants.

If you feel your firm still has a way to go in planning for MiFID II, then take a look at some of the below suggestions that may prove helpful in planning for MiFID. And don’t forget, if you should have any questions or require any additional support or assistance in Planning for MiFID II, please do get in touch with our friendly Compliance Support team.

Background to MiFID II

The Markets in Financial Instruments Directive (MiFID) is the EU legislation that regulates firms that provide services to clients linked to financial instruments and also the venues where those instruments are traded. Originally applied throughout the United Kingdom from November 2007, the directive is now being revised to help strengthen investor protection in light of the financial crisis.

The revised Markets in Financial Instruments Directive (MiFID II) will be implemented next year, on 3rd January 2018. The revisions being brought to the MiFID regime will be implemented by way of two parts – through the revised Directive (MiFID II) that alters and expands upon the existing directive and will be transposed into local legislation and also through new binding Regulation that will apply directly to firms within the EU. This regulation is known as the Markets in Financial Instruments Regulation (MiFIR).

Key Areas of MiFID II:

- Transparency & Transaction Reporting

o Clear information on all costs / charges for services and products

o Pre-trade and post-trade transparency regime

o Increased data reporting extended to new products, new data fields, near-real time submission

o Operators of trading venues to report transactions for firms that are not subject to MiFIR

o Compatibility between MiFID II and EMIR reporting

- Commodity Derivatives

- High Frequency Trading

- Organisation

o Additional organisation & government requirements

o Prohibition on the title transfer collateral agreement with retail clients

o Remuneration to prevent conflicts of interest

o Management body to ensure corporate governance arrangements are overseen and assessed regularly

o Induction and training for senior management

o Stress testing f products and services

- Market Structure

- Conduct of Business

o Focus on suitability, appropriateness, conflicts of interest

o Enhanced requirements or the compliance function and the handling of complaints

o Changes to rules on inducements for independent advisers and portfolio managers

o The definition of ‘personal recommendation’ will only exclude recommendations made to the public at large

o Telephone recording

o Best execution

Effects of MiFID II:

- Extended scope: More type of firms, new operators, additional investment types

- Increased focus on governance: Management body under scrutiny; product governance

- Transparency: pre-trade and post-trade disclosure; costs & charges

- Transaction Reporting: Increased data reporting, near-real time

- Additional Client Protection: Suitability and Appropriateness; Best Execution

When should your firm be planning for MiFID II?

At present the FCA is discussing with trade associations and HM Treasury the best way to implement MiFID II in the UK.

In should be noted that EU countries have until 3rd July 2017 to adapt their domestic laws and regulation to the revised legislation.

- Do not wait for the UK or EU to finalise its implementing legislation.

- Your firm should be already be planning for how MiFID II will affect you.

- In addition, whilst both the Treasury and the Financial Conduct Authority (FCA) will be making changes to the financial services legislation and the FCA Handbook, you will need to ensure you remain up-to-date on the latest proposals and again start planning before these changes are made final.

- There will be insufficient time to make thorough plans if waiting for the EU, Treasury and FCA to finalise all amendments and revisions relating to MiFID II.

How will the FCA implement the changes relating to MiFID II?

Given the fact that the MiFID II legislation will be very wide-ranging, it could affect many of the functions within your firm’s business model, from client services to your HR and IT systems. To help with planning for MiFID II, take a look at our high level checklist below and see if you have thought about these items:

Checklist for MiFID II:

- Determine impact and allocate resources ahead of effective date

- Are your activities and investments in scope?

- Transaction reporting and sufficient IT capability

- Suitability and appropriateness arrangements

- Remove 3rd Party payments and Title transfer collateral arrangements  (TTCA)  with retail clients

- Review policies (conflicts of interest, remuneration, best execution etc)

- Update corporate governance arrangements

- Training to management body and all staff

Help with Planning for MiFID II:

Firms impacted by MiFID II need to be authorised with the relevant permissions by 3 January 2018 if they wish to continue to carry out their business in the UK.

Remember: It is your responsibility to ensure you apply in good time and have the necessary authorisations and permissions in place to operate under the new regime.

The very latest date for submitting complete applications for authorisation or variations of permissions to the FCA is 3rd July 2017. However, the FCA strongly encourage firms not to wait for this date before submitting an application.

It could be that if the FCA find that your application is not complete at that time, you may not have the authorisation or permissions you need in place for January.

You should also consider whether you need to make new passport notifications and, if so, the timing implications for this.

If you need any help or assistance in planning for MiFID II please contact us.

Planning for MiFID II