FCA changes UK MiFID conduct and organisational requirements
The UK Financial Conduct Authority (FCA) today announced changes to the UK Markets in Financial Instruments Directive (MiFID).
MiFID is the collection of laws regulating the buying, selling and organised trading of financial instruments. However, there are areas where markets have evolved, or objectives are not being met as efficiently as possible.
The changes the FCA is making are intended to ensure that the rules for research and best execution are better tailored and more proportionate to the risks arising. This should remove unnecessary regulation, make the requirements less complex and make these markets work better.
The new inducement rules:
- Exempt research on small and mid-cap listed or unlisted companies (SMEs) who have a market capitalisation below £200m from the inducement rules. This means that research on firms below this threshold could be provided by brokers to asset managers on a bundled basis (where asset managers make a single commission payment to brokers covering execution and research) or for free and would not constitute an inducement under our rules.
- Exempt third party research on fixed income currencies and commodities (FICC) instruments from the inducement rules allowing it to be provided on a bundled basis and would not constitute an inducement under our rules.
- Exempt research providers from our inducement rules who do not provide execution services and are not part of a group that includes a firm offering execution services.
- Clarify that openly available written research would not fall within the scope of the inducement rules.
The new rules on reporting obligations remove:
- the obligation on execution venues to publish a report on a variety of execution quality metrics to enable market participants to compare execution quality at different venues (known as RTS 27 reports)
- the obligation on investment firms who execute orders to produce an annual report setting out the top 5 venues used for executing client orders and a summary of the execution outcomes achieved (known as RTS 28 reports)
From 1 December 2021, your firm will no longer be required to prepare RTS 27 and RTS 28 reports.
From 1 March 2022, asset managers and research firms can exercise the options on exempting the following from FCA’s inducement rules on research: research on SMEs below a market capitalisation of £200m, FICC research, research provided by research providers who not provide execution services and are not part of a group that offer execution services and openly available research.