O FCA MiFID II Conference Summary
KIRSTEN LAPHAM, WITHERS LLP
n 18 September, the Financial Conduct Authority (FCA) held a conference which addressed the agenda for Markets in
Financial Instruments Directive (MiFID) II. Among other key speakers, David Lawton, the FCA’s director of markets, and Maggie Craig, acting head of savings and investments, talked about the main changes and considerations for firms. Highlights from the conference include:
• The European Securities and Markets Authority (ESMA) is currently working on ‘being prepared’ for MiFID II. It is working up concrete legislative proposals for early next year, but the overall message which came from the conference is that ESMA is not yet ready.
• The FCA has stated that it is: “not 100% ready – but it will be ready”. This is due to its work being intrinsically linked to ESMA’s work on the Level II measures. Because it is not yet able to work on clear implementation strategies, the FCA is encouraging industry to continue to work closely together with the FCA by providing feedback to it.
• The FCA acknowledges that SMEs are likely to be some of the firms hit hardest by the changes introduced by MiFID II, so it has stated it will aim to implement provisions in the most sympathetic way possible for those firms.
• While SMEs are acknowledged to be a fairly robust market, the effect of MiFID II on SMEs is unclear for these businesses, and the question still remains as to how SMEs can ready themselves. How small businesses can attract liquidity is something that SMEs will need to consider.
• The market data reporting requirements are a lot more rules-based than we have previously seen, which will make it fairly challenging for the FCA to implement the terminology and to ensure clarity
funds had the strongest inflows at $4.4 billion,” said Waksman. He also noted that investors are shunning macro funds, which have had the most redemptions year-to-date ($4.3 billion) and in the past 12 months ($9.8 billion).
The monthly TrimTabs/BarclayHedge survey finds no consensus on US stocks: 37.4% of respondents in September’s survey were neutral on the S&P
in its use. This was one of the issues apparent with EMIR that will need to be closely addressed. While there is some overlap between European Markets Infrastructure Regulation (EMIR) and MiFID, firms should be aware of the different hurdles to the differing reporting regimes.
• With respect to market reporting, as reflected in ESMA’s discussion paper (2014/548), there will be an enhanced focus on data quality so that regulators will better understand the quality of the data it is receiving and will be better able to identify what firms are doing. This will be new for many firms that will not be used to the level of data being required for reporting.
• Comments from the panel stressed that firms should ideally already have strong senior managements, systems and controls (SYSC) processes and infrastructure in place for reporting. Larger organizations, with proper teams and governance structures in place, should, in theory, not see much change in their processes, but smaller firms should use these changes as a reminder that clear governance structures must be in place to deal with these new requirements.
The key highlights from a keynote and break-out session on implementation of conduct of business standards in the UK are listed below:
• In terms of how the new rulebook might look, the FCA has suggested that a pure copy-out and pragmatic approach to MiFID II could be expected. Senior managers are therefore advised to consider what this may mean for the business and get to grips with how MiFID II would apply to their firms in practice and not just in theory.
• MiFID II will be forcing firms to think about the design and selling of their products and ensuring
500 over the next 30 days, 32.3% were bullish, and 30.3% were bearish. Optimism on the US dollar index rose to an all-time high, while pessimism on 10-year Treasury notes more than doubled. Managers also turned more bearish on gold and oil prices.
September redemption notifications at 3.25% The SS&C GlobeOp Forward Redemption Indicator
the products sold are appropriate. While this is a familiar theme in the UK, firms should expect an increased focus on senior management. Senior management will need to make it very clear why risks were taken at all. Firms should therefore begin to think about the training of key staff and reviewing internal policies to address this heightened scrutiny from the regulator.
• Firms will need to be confident that they have clear processes in place when it comes to approving the financial instruments that they manufacture and assessing the risks of selling into particular markets and to particular types of consumers.
• The FCA’s ‘appropriateness test’, which requires firms to check whether investors are likely to be capable of understanding more complex products before a purchase can be made, will now be required for a wider range of instruments. The FCA expects firms to consider this measure complementary to its current product governance controls.
• The new requirements on investor protection and oversight and governance of products are themes previously addressed in the FCA’s supervisory work, so the FCA will be consolidating the MiFID II requirements with its current work and will be making its expectations in this area far more explicit.
• Customer charges disclosure: there has been little room for interpretation given the granular detail which has been provided in this area and how ESMA has approached it. The FCA’s approach appears to be aligned with industry in saying that the measures do not need to go beyond the text, whereas some of ESMA’s measures do. What is clear is that firms will need to demonstrate that there is a discernible benefit to the customer. THFJ
for September 2014 measured 3.25%, down from 4.19% in August. “Forward redemptions were moderate for the month of September, with the bulk of activity representing quarter-end requests,” said Bill Stone, chairman and chief executive officer, SS&C Technologies. The SS&C GlobeOp Forward Redemption Indicator represents the sum of forward redemption notices received from investors in hedge funds administered by SS&C
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Firms need to consider new requirements
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