04 January 2017

AFME response to consultation paper FCA CP16/29 (Markets in Financial Instruments Directive II Implementation Paper III)

AFME understands that some of the obligations in the FCA Handbook will apply to non-MiFID entities and recognise that in certain circumstances this is necessary in order to streamline rules and obligations on similar type entities.

AFME would therefore welcome clarity regarding the FCA’s intent, specifically a tabulation of the proposed rule extension to the various non-MiFID entities. This would be particularly helpful as it would give a clear focal point to all types of entities in determining which specific provisions of the Handbook apply to them.

AFME welcomes the FCA’s proposed rules implementing the Delegated Directive on inducements but considers certain aspects of the proposed UK rules impracticable, potentially detrimental to the operation of financial markets and constituting considerable divergence from European harmonisation. It has focused below only on the aspects of the proposals that would benefit from improvement and not on issues which are already settled in the Delegated Directive and therefore necessary in the new regime1, even though AFME maintains the reservations we have previously expressed on several aspects of the new regime.

The MiFID II inducements regime applies to non-monetary benefits provided “in connection with the provision of an investment service or an ancillary service”. Certain activities, however, should properly be seen as an integral part of the investment service (or ancillary service) being offered to the portfolio manager (and, indirectly, its underlying customers) and so not subject to the inducements regime at all. The benefit of these services goes to the end client; therefore, the risk addressed by the MiFID II inducement rules of improper inducement is not inherent in these goods and services which are inextricably linked to the provision of execution to the end client.

AFME therefore asks the FCA to clarify in its Policy Statement that the scope of “execution services” includes all services and activities that are integral to the execution of a transaction.

AFME considers that the omission of the reference to firms established in the Union and the resulting extension of scope wrongly gold-plates the MiFID II requirements on firms when dealing with investment firms that are not subject to the prohibitions in Articles 24(7) or (8) of MiFID II, either because they are not European investment firms or because they are European investment firms that are not subject to the narrower inducements rules. AFME would suggest amending COBS 2.3.C1 R (1) to clarify that it captures “an investment firm subject to Art 24(7) and (8) of Directive 2014/65/EU”.

AFME requests that the FCA continue to engage, directly and with other European policymakers, with the SEC regarding potential conflict between the US and European regimes and assist in developing a workable solution to the benefit of investment research consumers in both regions. An outcome that involves European asset managers no longer being able to access US-authored investment research or engage with US-based analysts is a particularly negative outcome that would hurt their investment process and therefore European investors.

Full response

© AFME