FCA Updates & Developments

The Financial Conduct Authority (FCA) has made a Market Investigation Reference (MIR) to the Competition and Markets Authority (CMA) in relation to investment consultancy and fiduciary management services.  


A MIR may be made by the FCA when it has reasonable grounds to suspect that any features of a financial services market prevent, restrict or distort competition. The FCA believes that the CMA is best placed to undertake the investigation regarding investment consultancy and fiduciary management services. 


The FCA identified three reasons to issue a MIR, the three largest firms together held between 50-80% market share possibly distorting competition. The barriers to expansion restricts smaller and newer consultants from developing their business and potentially restricting competition, and lastly vertically integrated business models creating conflicts of interest.  


When the FCA announced its provisional decision to make a MIR in November 2016, Aon Hewitt, Mercer and Willis Towers Watson offered the FCA a package of Undertakings In Lieu (UIL) to address its concerns, including a promise that they will amend their practices in place of a market referral to the CMA. Although the UIL was welcomed

Mark Steward, FCA Director of Enforcement and Market Oversight, delivered a speech (20 September 2017, AFME European Compliance and Legal Conference) regarding enforcement trends and the future enforcement of MiFID II.  

Compared to 2016, the number of investigations commenced, has risen by approximately 75%. This can be attributed to three factors: 

  1. Broadening the scope (e.g. poor disclosure practices) 
  2. Significant legislative changes under the Market Abuse Regime (MAR) 
  3. Starting point for investigations changing 

 The speech notes that the FCA should investigate cases in which they suspect serious misconduct may have occurred. It further highlights the operative word ‘serious’ which is described to typically include insider dealing, market abuse, poor disclosure and circumstances of harm to market integrity. 

It was noted that the FCA will act proportionately to MiFID II, meaning they will not take a strict liability approach, especially given the complex changes required to be in place. There are no intentions of taking enforcement action against firms for not meeting all requirements straight away where there is evidence that sufficient steps have been taken to meet the new obligations by 3rd January 2018. 

The FCA’s Director of Supervision – Retail and Authorisations, Jonathan Davidson, delivered a speech (20 September 2017) regarding the FCA’s focus on culture and conduct and the design of the Senior Managers and Certification Regime (SM&CR). 

There are two root causes the FCA sees as important and closely linked: 

  • the strategy and business models of firms  
  • the culture of firms

Regulatory tools to mitigate risk for strategy and business modelling will be discussed further in a future FCA publication regarding the approach to supervision. 

In the view of the FCA, the culture of a business must extend to a personal level. Individuals who are held personally accountable have positively affected outcomes in regulated sectors. Four types of lever for managing culture were identified: 

  • A clearly communicated sense of purpose and approach 
  • Tone from the top (actions of senior management) 
  • Formal governance processes and structures, the policies and systems 
  • People related practices (incentives and capabilities). 

The speech further continued to describe the three components of the SM&CR: 

  • The conduct rules (which apply to all employees within a firm) 
  • Rules for senior managers 
  • Certification rules 

 The FCA emphasises that employees need to act not only with integrity but with due skill, care and diligence. While senior managers are becoming approved, firms must also ensure that individuals who hold positions that significantly affect conduct outcomes can do their job well. To this extent an annual assessment has been proposed by the FCA.  

 The speech concluded by wanting to move beyond a ‘fear based’ culture. Although the SM&CR will be upheld through enforcement, the approach will be assessed as to whether reasonable steps were taken-to prevent other people breaching the conduct rules. 

The FCA has implemented measures to enhance their supervision strategy for Anti-Money Laundering (AML) and sanctions. The measures are designed to provide them with a greater reach over the numerous regulated firms. 

One aspect of these measures is a new programme which details an annual review of AML and the sanctions systems and controls of approximately 100 random firms. These firms are from sectors that the FCA supervise with inherently low money laundering risk. This will provide the FCA with a better picture of the risk posed in different sectors, help raise standards, and assure the FCA that the risk assessment is correct. 

The first-year review has been completed and the results have shown to be positive. Generally, the selected firms have systems and controls commensurate with their risk. Feedback has been useful for both firms and the regulator. More measures aimed at aiding the delivery of AML and sanctions supervisory objectives are to follow in the future.  

The FCA has published an article concerning the progress made with authorisation applications under MiFID II. It notes that applications made after 3rd July 2017 could not be guaranteed to be determined in time for 3 January 2018. 

The received applications have shown a significant number of firms seeking to operate a trading venue or wanting to become a Data Reporting Services Provider (DRSP). Several applications from DRSPs have already been determined to provide Approved Publication Arrangements. 

It further highlights that proprietary traders who are not authorised may need to be authorised under MiFID II. The FCA urges firms who have not applied to submit an application or to provide missing information to already submitted applications.  

The European Securities and Markets Authority (ESMA), with national competent authorities (NCAs), has published a work plan on the opinions on pre-trade transparency waivers and position limits for commodity derivative contracts. 

The plan aims to prevent bottlenecks in the processing of the large number of opinions to be issued on the implementation of MiFID II.  

ESMA makes the following proposal: 

  • Pre-trade transparency waivers: ESMA is prioritising the work on equity instrument waivers and intends to finalise them by 2017. The NCAs will grant provisional waivers to non-equity instruments until ESMA can later examine them 
  • Position limits for commodity derivatives: NCAs will publish and monitor the limits on 3 January 2018. These are provisional and will be subject to modification by ESMA. 

The FCA has responded as such: 

  • Pre-trade transparency waivers: FCA will communicate a response before ESMA opinions regarding non-equity waiver applications. With regards to equity waivers, the FCA plans to communicate after the finalisation of ESMA opinions 
  • Position limits for commodity derivatives: Publishing of position limits is intended to start in October 2017, coming into effect on 3 January 2018. 

These opinions must be issued under the amended MiFID II. 

The FCA provided an update (11 September 2017) regarding notification obligations under MiFID II. It focused on four topics: ancillary activity exemption, general clearing members, Systematic Internalisers (SIs) and Data Electronic Access (DEA) providers, and algorithmic trading. 

 Under MiFID II, firms or individuals who trade in commodity derivatives, emission allowances and derivatives on emission allowances on a professional basis, may make use of an exemption through an assessment of their trading activities in Regulatory Technical Standards 20 which is a criteria to determine if an activity is considered to be ancillary to the main business. 

MiFID II does not explicitly require general clearing members to notify the FCA. 

 With regards to SIs: 

  • Firms must monitor their trading levels and calculate whether their activities bring them into the SI regime in the instruments they trade 
  • Notification will be required when a firm starts its activity as an SI in a class of financial instrument 
  • Firms may opt-in by notifying the FCA that they will operate an SI in specified financial instruments as long as the threshold is not exceeded 

Furthermore, authorised firms and certain firms exempt from MiFID II must notify the FCA if they are providing DEA and algorithmic trading. Notification must be sent to the FCA when investment firms deal with one or more of these activities, commence one of more of these activities, or change and cease these activities.  

The FCA has published a consultation paper (CP17/32) proposing changes to the FCA handbook with regards to the following: 

  • Chapter 2 - The fees for varying permission under Payment Services Directive; 
  • Chapter 3 - Decision procedure, penalties and enforcement guide to breaches of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation; 
  • Chapter 4 - Supervision manual (SUP) relating to the Insurance Distribution Directive (IDD) and COBS 16 in relation to the reporting of information to clients under MiFID II; 
  • Chapter 5- Chapter 2 of the Prudential Sourcebook for Investment Firms (IFPRU 2); 
  • Chapter 6 - PRIIPs key information document and personal projections; 
  • Chapter 7 - Projection rates in the Conduct of Business sourcebook;  
  • Chapter 8 - Reporting requirements in the Supervision manual (SUP); and 
  • Chapter 9 – Retirement interest regarding mortgage lending. 

The deadline for comments are 2 October 2017 and 1 November 2017 for Chapters 4, 5 and 6 and Chapters 2, 3, 7, 8 and 9 respectively. 

For further details on CP17/32, click here: https://www.fca.org.uk/publication/consultation/cp17-32.pdf 

The FCA Board has made changes to some of the instruments to the Handbook on 12 September 2017, the relevant points are set out below:  

Handbook Administration (No.47) Instrument 2017 

  • Glossary definition of ‘client’; 
  • Definitions of ‘common platform organisational requirements’ and ‘remuneration’; 
  • Changes to cross reference in SYSC 3.2.6D (systems and controls), 6.3.4G (compliance, internal audit and financial crime) and PERG 3A.4 (Guidance on the scope of Electronic Money Regulations 2011), 14.5 (the by-way-of-business- test) and 15.5 (Negative scope/exclusions Payment Services Regulations 2009) to the Money Laundering Regulations 2017; 
  • Changes to clarify cross reference in SYSC 4.3A.7R(2)(b)(i) (CRR firms) to ‘EU CRR’; 
  • Clarifying and correcting the application of SYSC 10 (conflicts of interest); 
  • Update to Column A of Table A regarding application of the common platform requirements in SYSC 1 Annex 1 (detailed application of SYSC) to clarify that SYSC 10.1.12G applies; 
  • Removal of hyperlink to reflect that ‘client money’ is not defined in COND; 
  • Changes to fees to clarify IML levy rates for 2017/2018; 
  • Change to a cross reference in CASS 8.1.2AR (mandates) to update from older version; 
  • Correction to a cross reference in CASS 6.4.1D (Use of safe custody assets); 
  • Addition to SUP 12 Annex 4R form (appointed representatives undertaking structure-deposit regulated activities); 
  • Changes to clarify arrangements about timing regarding access to MTF/OTFs in Notice of intention; 
  • Changes to forms in SUP 10C to add the SMF 24 (COO) function and a new PR for outsourcing; 
  • Changes to DISP in line with Gabriel regarding validation of restricting firms; and 
  • Changes to DISP 1 Annex 2G to clarify the DISP 1.1A requirements for MiFID investment firms do not apply to others. 

Training and Competence Sourcebook (Qualifications Amendments No. 16) Instrument 2017 

  • Amending glossary definition of ‘Institute of Financial Planning’; and 
  • TC appendix 4.1 regarding qualifications from the CFA Institute, Chartered Institute for Securities and Investment, Chartered Insurance Institute and Institute of Financial Planning. 

Conduct of Business (Disclosure Amendment) Instrument 2017 

  • COBS 4 (communicating with clients including financial promotions) and 14 (product information to clients); and 
  • MCOB 7 (disclosure at start of contract and after sale). 

 Pension Schemes (Disclosure of Transaction Costs and Administration Charges) Instrument 2017 

  • Glossary definition of ‘relevant scheme’ citing COBS 19.8; and  
  • COBS 19 regarding Disclosure of transaction costs and administration charges in connection with workplace pension schemes. 

 Listing Rules (Corporate Governance Code) Instrument 2017 

  • Glossary definition for ‘UK Corporate Governance Code’; and 
  • Amending App 1.1 ‘UK Corporate Governance Code’.  

Fees (Payment Services) Instrument 2017 

  • Glossary definition of ‘fee-paying payment service provider’; and 
  • Amending 3.27R regarding applicant for registration as an account information service provider under regulation 17 of the Payment Services Regulations; 
  • 3 Annex 8R (registered account information service provider); and 
  • 4 Annex 11R (Large payment institutions). 


In the latest issue of Market Watch, the FCA shifts its focus onto the MiFID II Legal Entity Identifier (LEI). An LEI serves as a unique identifier for legal entities or structures (companies, charities and trusts). The obligation for legal entities or structures to have an LEI was endorsed by the G20. 

A brief summary of what the FCA notes that firms must do is provided below: 

  • Firms subject to transaction reporting obligations must have an LEI and keep it updated 
  • Market data obligations must be met using the FCA’s market data processor from 3 January 2018 
  • The FCA’s market data processor will be live for testing from 3 January 2018. Firms will need to use the entity to request extracts of transaction reports from the FCA 
  • SI must submit instrument reference data to the FCA for instruments that fall under the scope of the transaction reporting regime.  

Publication in full: https://www.fca.org.uk/publication/newsletters/market-watch-53.pdf 

The International Swaps and Derivatives Association (ISDA) has published a paper containing recommendations to ensure Central Counterparties (CCPs) can withstand severe market stress. Effective operation of the CCPs are critical to the stability and sustainability of the global financial markets. If CCPs are not properly managed in times of significant market volatility, it could inflict major financial damage on clearing members, trading venues and other market participants. For these reasons, regulators and policy-makers must continue to address issues surrounding the CCP.  

The paper addresses key points for policy-makers, supervisors and resolution authorities to consider when implementing CCP recovery and resolution mechanism: 

  • maximum transparency for clearing participants and at a minimum, clearing participants must understand: 
    • The triggers for resolution and regulatory intervention; 
    • Resources available to the CCP in recovery; 
    • Tools that CCP would utilize in recovery; 
    • Any restriction on the use of tools in recovery; and 
    • Outcomes of assessments determining if CCP is resolvable. 
  • timing of resolution commencement and flexibility to continue beyond the specified time 
  • CCP assessments to be capped in aggregate across recovery and resolution as additional assessments could impose liquidity burdens and potentially destabilize the broader financial market 
  • initial margin haircutting should never be permitted as it would have a knock-on effect and could discourage participation in the CCP’s default management process 
  • Clearing participants should retain claims for the amount of their total losses resulting from the use of loss-allocation tools, the would create an incentive to participate in CCP’s default management process whilst encouraging participants to clear at the CCP. 

Recommendation paper: http://assets.isda.org/media/85260f13-48/d1ef0ce0-pdf/

The Joint Committee of the European Supervisory Authorities (ESAs) has published a report on risks and vulnerabilities in the EU financial system. The report highlights the risks to the stability of the European financial sector in the current uncertain political and economic environment. It has regard for the risks of the UK’s withdrawal from the EU and the rapid developments in FinTech that raises opportunities as well as challenges for financial institutions. The report further presents initiatives to monitor and mitigate the risks identified. 

Below is a list of some of the risks identified in the report: 

  • The UK’s withdrawal from the EU 
  • Ongoing negotiations and the uncertainty of withdrawal terms could lead firms to be unprepared resulting in an impact on the financial flow between EU and UK. 
  • The continuity of contracts between parties in UK and EU 
  • Lower regulatory or supervisory standards that may raise level-playing-field issues in particular with investment firms 
  • Valuation risks.  
    Indications for a reversal in interest rates and risk have emerged as some EU member states and low risk corporate yield has increased. An abrupt increase in yields could result in capital losses for low-yield and long-duration portfolios and could generate volatility in asset prices.  
  • Low profitability in financial institutions such as banks and insurers.  
    The continued need to adapt business models and substantial investment into technological infrastructures have caused a challenge in profitability.   
  • The rapid increase in FinTech drives business models to change at financial institutions. 
    Though it attracts new entrants and create opportunities, the ESAs have identified data privacy issues, potential discrimination, cyber-crime and legal issues to consumers and the financial institution itself.  

 Full Report: https://esas-joint-committee.europa.eu/Publications/Reports/JC%20Risk%20Report%20-%20Autumn%202017%20(JC%202017%2046).pdf

The FCA has published its latest policy development update. See below for upcoming policies alongside their expected dates: 

  • Financial Advice Market Review implementation part I – finalised guidance (September 2017); 
  • Policy Statement to Consultation Paper 17/28: Financial Advice Market Review - implementation of part II and insistent clients (December 2017); 
  • Policy Statement to Consultation Paper 16/42: Reviewing the funding of the Financial Services Compensation Scheme (Q4 2017); 
  • Consultation Paper on the implementation of the Benchmarks Regulation (TBC); and 
  • Policy Statement to Consultation Paper 17/10: Credit card market study - consultation on persistent debts and earlier remedies (TBC). 

The FCA Executive Director of Supervision, Megan Butler, delivered a speech (28 September 2017) focused on investment and asset management. The speech’s objectives were to clarify the FCA’s supervisory priorities and to provide details on the FCA’s asset management authorisation hub. 

The FCA plans to set up an asset management hub to aid new entrants to the market. This will aid start-ups as they move between the process of pre-authorisation, authorisation and to regular supervision. To achieve this user-friendly process, the FCA aims to clarify expectations with better guidance on regulations and processes, allow an easier access of information via a portal on the FCA website, foster a positive and personal engagement between the FCA and market entrants and lastly, an end-to-end support for firms throughout the start-up cycle.  

The hub is not designed to lower entry to the market but to allow ease of access and support through meetings and dedicated case officers.  

 The speech continues and discusses the priorities on the extension of the Senior Managers Certification Regime and MiFID II. The FCA sees personal accountability as fundamental to the future of financial services. This is the reason the extension of SMCR is sort for by the FCA to apply to most financial services firms as well as firms regulated by the FCA. The FCA has recognised the importance of being proportionate and effective with the regime. It is aware that the regime would apply to firms of different sizes and therefore plans have been put forward to address this issue for a ‘core regime’ (baseline requirements to every firm) and an ‘enhanced regime’ (for the largest and most complex businesses).  

 Proposals have been sent in Consultation Paper 17/25 and responses are encouraged. The deadline is 3 November 2017.  

 With regards to MiFID II, the FCA is in support of the key objectives of the legislation and points out that the range and depth of data collected will improve their ability to monitor the market. Although the implementation of MiFID II is beneficially to all, it is recognised that the new reporting requirements places an onus on firms. The speech makes a reference to the enforcement action noted by the FCA Director of Enforcement, that there is no intention of taking enforcement action against firms for not meeting all MiFID II requirements straight away, provided there is evidence sufficient steps have been taken to meet the new obligation. (For a summary of the speech, please refer to 1.2 of this update) 

 Two pressing priorities are discussed in relation to the industry. First, it is expected that firms comply with their obligations under the Market Abuse Regime and submit Suspicious Transaction and Order Reports to the FCA. In addition, firms are expected to continue to ensure that the systems and controls of the firm are deterring market abuse. The second priority the FCA stresses is the need for a legal entity identifier (LEI) for legal entities that want to trade under MiFID II. The FCA reiterates the importance for firm’s clients to be aware of the deadline and to obtain an LEI. 

 In ending the speech, the FCA discusses Brexit and the importance of international co-operation. The FCA believes the regulators are well placed to solve challenges from the potential adverse impact on European and global markets and that it will strive for a pragmatic, productive and positive cooperation between the UK and European regulators. It further asks firms to support Brexit-related business planning and to help maintain the integrity of UK markets and protect customers.  

Speech: https://www.fca.org.uk/news/speeches/where-next-investment-and-asset-management-regulation

The FCA has published a finalised guidance on streamlined advice and the fact find process. The guidance aims to address two of the recommendations from a previous report from the Financial Advice Market Review (FAMR) in March 2016, some of the guidance are listed below: 

  • Supporting firms offering ‘streamlined advice’ 
    • The guidance considers: 
      • how firms should approach the task and provides good/poor practices 
      • how certain information may or may not be necessary to collect with different scenarios available as examples 
      • a narrower scope of streamlined advice service does not allow a firm to lower the protection level of clients 
  • Clarifying the fact find process 
    • The guidance considers: 
      • Good examples of fact find such as allowing their clients to review the current information the firm holds on the client 
      • A more efficient fact-finding practice such as a pre-completed fact find. The guidance cautions that the responsibility lies with the firm to ensure the information is satisfactory to provide the service. 

The new set of guidance primarily applies to: 

  • Firms or individuals providing or considering providing investment advice 
  • Firms or individuals providing services to providers of investment advice 
  • Trade bodies whose members have an interest in the financial advice market 

Finalised guidance: https://www.fca.org.uk/publication/finalised-guidance/fg-17-08.pdf 

The Financial Services Compensation Scheme (FSCS) has announced an industry-wide agreement to raise awareness of deposit protection for consumers. Under this new agreement, the FSCS badge will be required to be displayed in the following channels and documents: 

  • Websites 
  • Mobile banking apps 
  • Customer information sheets 

 Banks and building societies will have 18 months to implement the agreement. Guidance is being sent out on the new arrangements. 

PRA Updates & Developments

The Joint European Supervisory Authorities (ESA) Guidelines JC/GL/2016/01 on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector will come into force on 1st October 2017.

 The FCA and PRA have notified ESA that they will comply with the guidelines except for the provision relating to the identification of acquirers of indirect qualifying holdings.  


Guideline Paper: https://esas-joint-committee.europa.eu/Publications/Guidelines/JC%20GL%202016 %2001%20(Joint%20Guidelines%20on%20prudential%20assessment%20of%20acquisitions%20and%20increases%20of%20qualifying%20holdings%20-%20Final).pdf

 https://esas-joint-committee.europa.eu/Publications/Guidelines/JC%20GL%202016 %2001%20(Joint%20Guidelines%20on%20prudential%20assessment%20of%20acquisitions%20and%20increases%20of%20qualifying%20holdings%20-%20Final).pdf

The PRA has published a consultation paper (12 September 2017) relating to all firms that are currently paying PRA fees or are expecting to do so within the 2017/2018 year under the Annual Funding Requirement. 

The PRA explains that the fee rates previously did not reflect the most up to date data collected from firms and therefore proposes to correct the fee rates in the PRA Rulebook. This correction of fee rates will see firms paying less than those previously published in the Policy Statement 17/17. 

The deadline for comments was 12th October 2017. 

Consultation paper: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2017/cp1717 .pdf

A letter released by the PRA brings its current focus to the transitional arrangements relating to the impact of International Financial Reporting Standard 9 (IFRS 9) on expected credit loss accounting. This implementation is likely to be established with the amendment of Capital Requirements Regulation (CRR). Based on the current progress on the draft legislative texts, there is likely to be a five-year transition period and probable that the use of these arrangements will be at the option of the firm. 

The PRA encourages firms to use the arrangements on the first date of IFRS 9 application (1st January 2018).  

The PRA published an update on Capital+ reporting requirements ahead of its implementation on 1 October as set out in PS32/16 ‘Responses to Chapter 3 of CP17/16 – forecast capital data’. The PRA will aim to contact the following firms with regards to the details of what they need to know and do: 

  • Firms with a reporting deadline in December 2017 will be contacted around 25 October 2017;  
  • Firms with a reporting deadline in January and February 2018 will be contacted around 9 October 2017; and 
  • Firms with a reporting deadline in March 2018 and beyond will be contacted once a quarter in 2018. 

Firms are encouraged to refer to the indicative timeline for further details on key activities. 

Policy Statement 32/16: http://www.bankofengland.co.uk/pra/Pages/publications/ps/2016/ps3216. aspx

EU-Wide Updates

The ESMA has updated its Q&A document regarding the implementation of the Market Abuse Regulation. The Q&A clarifies the scope of firms that are subject to the Market Abuse Regulation (MAR) provision to detect and report suspicious orders and transactions. It provides new detailed answers on: 

  • The scope of financial instruments subject to the market sounding regime; and 
  • persons subject to the insider list requirements.  

Q&A: https://www.esma.europa.eu/press-news/esma-news/esma-updates-qa-mar

The Futures Industry Association, with the cooperation of the Association for Financial Markets in Europe, the Alternative Investment Management Association, and the Managed Funds Association, have published a template due diligence for MiFID II investment firms providing DEA to their clients. MiFID II requires investment firms providing DEA to have appropriate risk controls to prevent potential risks to the investment firm or to the market. DEA is prohibited without such controls and an investment firm providing DEA is responsible to ensure that clients using the service complies with the requirements under MiFID II. 

The template allows a standardised set of relevant checks to the investment firm and the client to utilise as a set of relevant/necessary checks. This will allow for a good basis of checks but it is not intended to be uniformed across all firms. Items may be omitted and added as appropriate to firms or local regulations. 

ESMA has updated its transitional transparency calculations (TTC) for non-equity instruments under MiFID II. Transparency requirements under MiFID II/MiFIR empowers competent authorities (CAs) to waive the obligation for certain market operators and investment firms to make public pre-trade information for non-equity instruments. In addition, non-equity instruments may also benefit from deferred publication.  

For the implementation of MiFID II’s transparency requirement, national competent authorities (NCAs) has to publish certain information relating to liquidity classification six months prior to the date of application of MiFIR. EEA NCAs, with the exception of Poland, have delegated this to ESMA. The data will be compiled using data provided by the European trading venues. The data is now avaliable on the ESMA website. 

Given the scope and complexity of the calculations, it warns that further changes cannot really be ruled out And ESMA expects to continuously supplement and update the information where necessary.

Update: https://www.esma.europa.eu/policy-activities/mifid-ii-and-mifir/mifid-ii-transitional-transp arency-calculation

The European Commission has published a report to the European Parliament and the council on the need to temporary exclude exchange-traded derivatives (ETDs) from the scope of Articles 35 and 36 of the Regulation (EU) No 600/2014 on markets in financial instruments. 

Under examination, the Commission concludes that the current regulatory framework in MiFIR and EMIR appropriately addresses the potential risks raised by the MiFIR in the implementation of open and non-discriminatory access to ETDs. The report concludes that it is not necessary to temporarily exclude ETDs from the relevant sections of the MiFIR. 

The European Commission has published a draft legislation to establish a framework for screening of foreign direct investments into the European Union. If adopted, both Member State governments and the Commission would be empowered to screen and block or unwind foreign investments in the European Union.  

The proposal comments on a variety of matters including the application of its investment scope, foreign investors controlled by the government of a third country, report mechanisms, merger regulations, and the effect of Brexit. 

Draft legislation: http://ec.europa.eu/transparency/regdoc/rep/1/2017/EN/COM-2017-487-F1-EN-MAIN-PART-1.PDF

The ESMA has updated its Q&A on MiFID II implementation. The purpose of the Q&A is to provide common supervisory approaches and practices in the application of MiFID II and MiFIR. This update provides responses to the general public and market participants regarding the practical application of the regulation on: 

  • Timing and procedure of notification for temporary opt-out (Article 36(5)) 
  • Exemptions under Article 36(5) and 54(2) of MiFIR 
  • Timing of application for transitional arrangements (Article 54(2)) 
  • Limited of access rights following exemption (Article 36(5)) 

Q&A: https://www.esma.europa.eu/press-news/esma-news/esma-updates-qa-mifid-ii-implementati on-1

The ESMA has published a procedure/policy statement relating to the verification and approval of notifications for the temporary exemption of the access provisions under MiFIR for trading venues. MiFIR establishes the requirement that a trading venue must provide certain information on a non-discriminatory and transparent basis upon request to any CCP authorised or recognised by the EMIR. The procedure however would allow an exemption for trading venues that falls below the threshold of EUR 1,000,000 of annual notional amount traded in exchange traded derivatives (ETDs).  

The exemption will allow a trading venue which falls below the threshold, on notification of ESMA and CA, to not be bound by the obligation for a period of 30 months from the application of the Regulation. This may be extended provided the trading venue falls below the threshold every year. 

The document is intended for Cas and trading venues that can benefit from the exemption. 

Policy/Procedure document: https://www.esma.europa.eu/sites/default/files/library/esma70-154-259_article_36_5_mifir_procedure_public.pdf

The ficial Journal of the European Union (OJ) has published a regulation, Regulation (EU) 2017/1538, amending previous regulation, Regulation (EU) 2015/534, for the reporting of supervisory financial information.  

The amendments mainly reflect the changes supervisory reporting to align with reporting on financial information (FINREP) with the requirements of International Financial Reporting Standard 9 (IFRS 9). 

The amending regulation entered into force on 9th October 2017. 

Regulation (EU) 2017/1538: 

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R 1538&from=EN

The European Commission published a draft legislation (20 September 2017) that would introduce changes to powers, governance structures, and fund mechanism of the ESA. If introduced, the proposed legislation will expand the features regarding the following areas: 

  • Financial burden of the ESA and financial market participants 
  • ESMA’s over sight of securities markets 
  • ESAs’ power and governance 
  • ESAs’ funding mechanism 
  • MiFIR transactions reporting and supply of financial instruments reference data 
  • Changes to authorisation and supervision of Data Reporting Service Providers 
  • Changes to critical and third country benchmarks regime 
  • ESMA’s role in market abuse investigations 
  • Expansion of ESMA product intervention powers 

The legislative review is expected to last between 12-18 months.  

Proposed legislation: https://ec.europa.eu/info/law/better-regulation/initiatives/com-2017-536_en 

The EBA has published a discussion paper on significant risk transfer (SRT) in securitisation. The paper aims at seeking stakeholders’ views on harmonising the regulation and supervision of the SRT in securitisation. 

The proposal is based on the newly agreed European securitisation legislation. It will include requirements for institutions and CAs in their respective dealing of securitisation transactions in SRT and the assessment of transactions that claim SRT as well as the assessment for CAs in the transfer of commensurate credit risk to independent third parties. 

The deadline for comments on the discussion paper is 19th December 2017. 

Discussion paper:  https://www.eba.europa.eu/documents/10180/1963391/Discussion+Paper+on+th e+Significant+Risk+Transfer+in+Securitisation+%28EBA-DP-2017-03%29.pdf

The Association for Financial Markets in Europe (AFME) has published a report explaining the reporting requirements under MiFIR. The document highlights the challenges and practical options to being compliant with MiFID II. 

Listed are areas the report covers: 

  • Post-trade transparency requirements 
  • Data reporting including when and where the data is to be reported 
  • Reporting scenarios 
  • Challenges that participants will need to consider when implementing solutions 
  • Explanation of relevant terms 

Full Report: https://www.afme.eu/en/reports/publications/mifid-ii--mifir-post-trade-reporting-requi rements/

The European Parliament has updated its procedure file on the proposed regulation, Commission Delegated Regulation from 12/6/2017, regarding the exemption of certain third countries’ central banks in their performance of monetary, foreign exchange, and financial stability policies from pre/post trade transparency requirements.  

The file states that both the Council of the EU and European Parliament have raised no objection. 

Procedure file: 

http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?reference=2017/27 41(DEA)&l=en

The European Commission has adopted the following level 2 measures relating to indirect clearing: 



The Council of the EU and European Parliament will now consider the Delegated Regulations. If neither object, the Delegated Regulations will apply from 3rd January 2018. 

The Commission has published a Commission Implementing Regulation (EU) 2017/1486 on benchmarking portfolios and reporting instructions amending previous Implementing Regulation (EU) 2016/2070.  

The requirement under the amended regulation has institutions submitting their calculations of their internal approaches at least annually. But due to the focus of the CA’s assessments and EBA’s reports changing over time, the reporting requirements should be adapted accordingly. Therefore, the regulation to amend was published to rectify that change.  

The Amending Implementing Regulation will come into force on 20th September 2017. 

The FCA has published guidance to assist non-financial entities to complete the commodity position limit exemption application form.  

The guidance notes that: 

  • The exemption should only be applied for where a firm trades the relevant commodity derivatives by way of business on a professional basis 

The exemption does not apply for a position held on behalf of another entity.

ESMA and EBA has published a guideline on the assessment of the suitability of members of the management body and key function holders under MiFID II and Capital Requirements Directive 4. In aiding to identify suitability of senior management, the guidelines provide criteria to assess an individual’s knowledge, skills and experience as well as the repute, honesty, integrity and independence of mind. Additionally, the document provides a framework to assess time commitment to ensure that members of the management body places sufficient time into their functions.  

The guidelines apply to all institutions and covers the following topics: 

  • The application of the proportionality principle 
  • Scope of suitability assessments by institutions 
  • Resources for training of members of the management body 
  • Diversity within the management body 
  • Assessment by institutions and competent authorities 

 The guidance will enter into force on 30th June 2018.  

Guidance Report: 


The European Commission has adopted the text of a Delegated Regulation which sets out the organisational requirements for data reporting service providers. The objective is to specify the scope of the consolidated tape for non-equity instruments under MiFID II. 

Consolidated tape providers (CTPs) must now publish the required data covering at least 80 per cent of their transactions information over a 6-month period. This will ensure that the published information remains useful and cost effective. 

The Delegated Regulation is now awaiting the consideration of the Council of the EU and the European Parliament. If neither object, the amending Delegated Regulation will enter into force on 3rd January 2018 with the exception of Articles 15a(4) and 14(2), 15(1), (2) and (3) and 20(b) which will be applicable from 1st  January 2019 and 3 September 2019 respectively.  

Delegated Regulation: http://ec.europa.eu/transparency/regdoc/rep/3/2017/EN/C-2017-6337-F1-EN -MAIN-PART-1.PDF

The Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) has published a consultation document proposing a update with the aim to ensure that the implementation of relationship data is consistent throughout the Global LEI System (GLEIS) and to provide a standardised collection of information at a global level. The report satisfies this objective by providing definition of fund relationships and aligning the cases where information is necessary for direct and ultimate account parent entities. 

The consultation document proposes the following relationships to replace the current ‘fund family’ relationship and the definition of which are included in the document: 

 ‘Fund Management Entity’ 

  • ‘Umbrella Funds’ 
  • ‘Mater-Feeder’ 
  • ‘Other Fund Family’ 

The consultation paper also gives a discussion on the reporting, validation and recording of these relationships. 

The deadline for comments is 26th November 2017. Implementation would not take place before January 2019. 

Consultation document: http://www.leiroc.org/publications/gls/roc_20170926-1.copy-1.pdf

The ESMA has published a template for central securities depository (CSD) on improving securities settlement and regulating central securities depositories (CSDR).  

Template document: https://www.esma.europa.eu/document/csdr-template-csd-register-notifications

The International Organisation of Securities Commissions (IOSCO) and the Committee of Payments and Market Infrastructures (CPMI) have published guidance to authorities on a uniform global unique product identifier (UPI) that applies to over the counter (OTC) derivatives transactions.  

The role of the UPI is to serve as a unique identifier for each OTC derivative product in a transaction to be reported to a trade repository in-line with the commitment for a more transparent OTC derivatives market.  

The report envisions a system in which a unique code is assigned to each distinct OTC derivative product, with each code mapping to a set of data that will describe the product. The guidance is global in scale and adheres to relevant international technical standards. It covers the following areas: 

  • technical principles applicable to the UPI; 
  • reference data elements required for each OTC derivative asset classification; 
  • identification of underlying assets and benchmarks of OTC derivative products; and 
  • code structure of the UPI. 

Technical Guidance: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD580.pdf

The International Regulatory Strategy Group (IRSG) has published a report setting out its thinking on the future trading relationship between the UK and EU post-Brexit. 

The objective of the report is to make proposals on the terms of an agreement whereby financial services suppliers in the EU and UK would have access to each other’s markets after Brexit. 

The following points are considered: 

  • EU and UK having mutual access to each other’s markets after Brexit 
  • How to manage changes in the law of one party and the consequences of such a change 
  • Supervision of firms 
  • Dispute resolution 

UK Finance and the Association for Financial Markets in Europe (AFME) have published a paper examining the impact of Brexit on cross-border financial services contracts. 

The paper states that an EU-wide solution would be preferable in order to minimise uncertainty for businesses in the EU. It also says that ‘the UK should provide clarity that existing contracts from EU based banks to UK will be grandfathered, for example through the European Union (Withdrawal) Bill.’ 

The paper further mentions a range of actions that would help manage the impact: 

  • both EU and UK should confirm at the earliest opportunity the preservation of the right to trade goods legally placed on the market at the point of separation 
  • the protection of existing contracts 
  • continuity of existing contracts 
  • member states to consider legislation to ensure contractual continuity 
  • the UK should use the European Union (Withdrawal) Bill process to provide the same. 

Full paper: https://www.afme.eu/en/reports/publications/impact-of-brexit-on-cross-border-financial-services-contracts/

The Basel Committee on Banking Supervision published a consultative document regarding the implications of fintech for the financial industry. The paper analyses the risks and opportunities of various future potential scenarios.  

The paper recommends that bank standards and supervisory expectations should adapt to new technology whilst complying with prudential standards. The Committee has therefore identified ten key observations and recommendations on supervisory issues for banks and bank supervisors to consider: 

  • Balancing safety and soundness of banking system against inhibiting beneficial innovation 
  • Ensuring an effective governance structure and risk management process 
  • Effective IT and other risk management processes to address the risks of new technologies 
  • Appropriate processes for due diligence, risk management and on-going monitoring of any operation outsourced to third parties 
  • Supervisors should cooperate with other public authorities responsible for regulatory functions related to Fintech 
  • International cooperation between supervisors 
  • Assessing current staffing and training models to ensure knowledge/skills remains relevant 
  • Considering investigation and exploring the potential of new technologies 
  • Reviewing their current regulatory, supervisory and licensing frameworks in light of new risks from innovative products and business models 
  • Learning from each other’s approaches and practices 

In addition to banking industry scenarios in the consultation document, three case studies on technology developments and three Fintech business models are available.  

The deadline for comments on the consultative document is 31st October 2017. 

Consultation paper: https://www.bis.org/bcbs/publ/d415.pdf

The Basel Committee has published a revised version of its FAQ on the definition of capital. Flowcharts have been added to aid the application and understanding of the Basel III transitional arrangements to capital instruments issued by banks. 

View FAQ: http://www.bis.org/bcbs/publ/d417.htm

The European Banking Authority (EBA) has published a revised guideline on Internal Governance. This guidance aims to harmonise the internal governance arrangements to be in line with the new requirements in this area introduced in the Capital Requirements Directive (CRD IV). The draft guideline emphasises on the following: 

  • the duties and responsibilities of management body in risk oversight 
  • the ‘know-your-structure’ 
  • the proportionality principle 
  • establishment of a risk culture, code of conduct and management of conflicts of interest 

The guideline comes into force on 30th June 2018. 

Dunraven Finance Ltd, trading under the name Buy as You View (BAYV), has been placed in administration. The FCA is currently working closely with the firm to ensure customers are treated fairly and notes that the firm is no long able to enter into new loans. 

Enforcement Action

The UK Competition and Markets Authority has published a letter to Paymentshield in respect of its non-compliance with the Payment Protection Insurance Market Investigation Order 2011 (PPI Order). The breach arises from Paymentshield’s non-compliance with Article 4 of the PPI Order which required Payment protection insurance (PPI) providers to send Annual Reviews to all their PPI customers.  

In remedying the breach: 

  • 2,665 customers had been sent apology letters 
  • Quarterly reports to the CMA on remediation activities with both the start and completion date reported 

The FCA fined Charles Palmer - a Director with Investments Limited and Financial Limited- £86,691 for breaching Statement of Principle 6 of the FCA’s Statements of Principle for Approved Persons.  

Pursuant to section 56 of the Act, the FCA has prohibited Mr Palmer from performing any significant influence function in relation to any regulated activities carried on by any authorised, exempt person, or exempt professional firm, on the grounds that he is not a fit and proper person to perform significant influence functions. 

The FCA found: 

  • The firms were not in control of the risks which arose from the business model of the firms and which affected customers of the appointed representatives of the firms.  
  • There were ineffective systems and controls to adequately mitigate the material risks to underlying customers arising from the firms’ business model 
  • He and the Board of the firms received insufficient information and valid assurance that the controls and mitigating measures in place were in fact effectively controlling or mitigating the risks. 
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