“Carrying on as we are is not a prudent option” says the Competition and Market Authority
The Markets in Financial Instruments Directive (MiFID) is the EU legislation that regulates financial services firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded.
MiFID, which applied in the UK from November 2007, has been revised by MiFID II, which took effect on 3 January 2018. The objective of MiFID II is to improve the operation of financial markets in light of the financial crisis and to strengthen investor protection.
MiFID II has been publicised by many as one of the biggest changes to EU markets for a decade. It introduces major changes to the regulation of financial services in the EU including changes to pre and post trade transparency, transaction reporting, corporate governance, product governance, client categorisation, best execution, conflicts of interest, disclosure of costs and charges and investment research.
Many firms have been preparing for the commencement of MiFID II for a number of years, however it is anticipated that there will inevitably be a large number of firms that have not fully implemented the changes prior to the legislation coming into force. Those firms may be concerned as to what action may be taken against them these failures.
In a speech in September 2017, Mark Steward, Director of Enforcement and Market Oversight at the FCA, made the following remarks: Mark Steward:
…We will not take a strict liability approach especially given the size, complexity and magnitude of the changes that are required to be in place. We are very aware of how much work many firms have been engaged in for a very long time now in re-tooling and preparing for next year. This means we have no intention of taking enforcement action against firms for not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start-date, 3 January 2018."
Many firms that have been working well to prepare for next year and they should feel assured and confident that they can continue to work with us to meet the starting line. At the same time, we cannot create a floor for compliance below the required MiFID II standards and so our disposition is likely to be different where firms have made no real or genuine attempt to be ready or where key obligations are deliberately flouted.”
This should give some comfort to those firms who are making best efforts to implement the changes, but there will inevitably be a time when the FCA will wish to ensure all firms are in line, and take enforcement action against those who are not. Firms should act quickly to ensure that all relevant rules to their business have been fully implemented.
Firms who have not implemented the changes are likely to be the focus of any FCA enforcement action, particularly where there is no evidence that efforts have been made to understand and implement the rules. In addition, the FCA could investigate and bring enforcement action against Senior Managers or officers whose duty of responsibility relates to implementation of regulatory change, in particular those under the Senior Manager Regime (for more, see here)
Failure to comply with the MiFID II rules is not a ‘breach of MiFID II’ per se; the rules set out by the EU legislation have for the most part been transposed into UK rules, largely set out in the FCA Handbook. The FCA would therefore take action for failing to comply with the rules in the usual way, for more on FCA enforcement investigations, see here.
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