FCA: UK still has to comply with MiFID II post-Brexit

Advisory firms that provide investment management services to EU clients, such as secondaries managers, must still comply with the directive, the UK's financial regulator says.

After Brexit, UK firms are still expected to comply with the European Securities and Markets Authority’s Markets in Financial Instruments Directive II, which takes effect on January 3, 2018, according to the Financial Conduct Authority.

“As we said in our statement following the EU referendum, firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect,” said Andrew Bailey, chief executive of the FCA in a statement.

MiFID II has a direct effect on private equity firms that provide investment advisory services to manager affiliates as well as others such as advisory firms that provide investment management and advisory services to EU clients, such as secondaries managers, within the scope of the directive.

“MiFID II contains important measures to enhance investor protection and bolster financial stability. It reflects recent themes of UK conduct regulation, such as improved controls on the manufacturing and distribution of financial products, and it implements the international commitments the UK entered into to reform derivatives markets following the financial crisis,” Bailey added.

“As much of MiFID II is in directly applicable obligations, the FCA and firms need to fulfil their legal responsibilities from the point they come into force. The consultation paper published today covers a range of issues including position limits and reporting for commodity derivatives, systems and controls requirements for firms providing MiFID investment services and client asset protections,” the FCA said in the statement.

MiFID II aims to address the initial weaknesses found in the EU securities market by reinforcing and replacing the current European rules on securities markets. The directive is likely to only affect some private equity firms and is less relevant to them than the Alternative Investment Fund Managers Directive.

However, firms that are affected by MiFID II should monitor national implementation, the issues that have been already consulted on by the FCA, and those issues that will continue to be consulted on this year, including moves at Member State level to apply MiFID requirements to AIFMs in order to create a level playing field, Clifford Chance partner Simon Crown previously told pfm.

In particular, firms that carry out MiFID activities such as advising or portfolio management conducted by AIFMs, should continue to consider their implementation of product governance and inducement rules, and should follow debates within industry associations on how these requirements should be implemented by private equity firms, said Crown.

The FCA is currently asking for comments on the consultation paper by October 28 2016. The regulator said that it will also publish a further consultation paper on MiFID II later this year.