UK Prudential Regulation Authority Issues Second Consultation Paper on Implementing MiFID II

The Prudential Regulation Authority launched its second consultation on implementing certain aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The consultation relates to requirements for a firm's management body and organizational requirements as well as to the new regulated activity of operating an Organised Trading Facility and the new financial instrument of "emission allowances" and structured products. The PRA consulted on its approach to passporting and algorithmic trading earlier in 2016 and has published its final rules for those areas. The PRA will consult on other aspects related to MiFID II in due course.

The governance and organizational requirements of MiFID II are detailed in a Commission Delegated Regulation on organizational requirements and operating conditions for investment firms which the European Commission adopted on April 25, 2016. As a Regulation, it will apply directly to firms subject to MiFID II across the EU once it comes into force. The PRA is proposing that its rules in this regard will be removed from its Rulebook. The PRA is proposing that the requirements in the Delegated Regulation be extended to the non-MiFID business of those firms that are in-scope of MiFID II and is proposing to implement that approach through changes to its Rulebook.

MiFID II introduces a new regulated activity of operating an OTF (a new type of trading facility), designates emission allowances as a new class of financial instrument and imposes new marketing requirements in relation to structured products, among others. The UK Government is intending to amend the Regulated Activities Order to transpose these requirements into UK law and to grant the UK regulators powers to process applications for variation of permission in advance of January 3, 2018 (the date from which MiFID II will apply). Subject to that legislation being finalized, the PRA is proposing that the transitional measure in the draft UK legislation be available so that a firm which is already undertaking certain regulated activities in relation to structured products would only need to notify the PRA of its wish to carry out those regulated activities in relation to structured products. The PRA proposes to direct firms that wish to use the transitional measure to notify the PRA using the variation of permission form available on its website.

MiFID II will apply from January 3, 2018. Member states are required to transpose the requirements into national laws by July 3, 2017. The PRA's proposed rules are expected to apply from January 3, 2018. Responses to the PRA's consultation are requested by February 27, 2017.

View the PRA's consultation paper – Part 2.

View the PRA&'s final rules and Policy Statement on passporting and algorithmic trading.