Key Proposed Changes to MiFID by the FCA
The UK Financial Conduct Authority (FCA) is planning several changes to the MiFID (Markets in Financial Instruments Directive) framework as part of its efforts to tailor financial regulations to better fit the UK market post-Brexit. The changes, outlined in the recent consultation paper CP24/24, focus on simplifying and streamlining existing requirements while ensuring investor protection and market integrity.
1. Transferring MiFID Organisational Rules into the FCA Handbook
- The FCA intends to move existing MiFID Organisational Regulation (MiFID Org Reg) provisions directly into the FCA Handbook.
- This transfer aims to reduce regulatory complexity, eliminate duplicated rules, and create a more consistent regulatory framework for investment firms.
- The overall approach is to make minimal changes initially to avoid disruption, with a focus on simplifying wording and structure for clarity.
2. Streamlining Conduct of Business Rules
- The FCA is looking to simplify rules around client disclosures, ensuring they provide meaningful information without unnecessary complexity.
- A key concern highlighted in the consultation is the potential for firms to exploit client categorisation rules to circumvent consumer protections.
- The regulator is considering improvements to the process of categorising clients, with stricter guidelines to prevent misuse of the system by financial institutions.
3. Aligning Record-Keeping Requirements
- Proposals include consolidating and simplifying record-keeping rules to ensure they are proportionate and fit for purpose.
- The FCA aims to provide greater flexibility to firms while maintaining strong investor protection standards.
- Specific areas under review include transaction reporting and transparency obligations to enhance market oversight.
4. Market Conduct Enhancements
- The consultation proposes clearer guidelines for trading venues and investment firms on how to handle issues such as suspensions of financial instruments and dealing with potential market abuse.
- This includes ensuring firms have robust procedures in place for reporting suspicious activities to the FCA.
5. Future Reviews of Key Areas
The FCA acknowledges that more extensive changes will be required in the future to further refine the UK’s MiFID framework. Some of the areas identified for future consideration include:
- Client Categorisation: Reviewing how professional and retail clients are classified and whether thresholds should be adjusted.
- Best Execution Requirements: Evaluating whether current rules on achieving the best possible trading outcomes for clients are overly complex and whether simplification is possible.
- Conflicts of Interest: Assessing whether firms’ current frameworks sufficiently mitigate potential conflicts within investment services.
- Research Unbundling: Reviewing the impact of existing MiFID rules on research payment and whether changes are needed to support market competitiveness.
6. Interaction with Other FCA Initiatives
The changes proposed in CP24/24 will align with other ongoing regulatory initiatives, including:
- The Advice Guidance Boundary Review, which looks at the distinction between regulated financial advice and guidance services.
- The Consumer Duty, aimed at ensuring firms act to deliver good outcomes for retail customers.
- The replacement of the current UK PRIIPs (Packaged Retail and Insurance-based Investment Products) disclosure regime with a new, more effective framework.
Next Steps and Consultation Timeline
Firms should start preparing for potential changes by reviewing internal processes and assessing compliance strategies to align with the upcoming regulatory framework.
Stakeholders have until 28 February 2025 to provide comments on the proposed changes, with additional discussion points open until 28 March 2025.
Following the consultation period, the FCA will review feedback and issue a policy statement outlining its final approach.
