European Union: MiFID 2: PRA Issues Consultation Paper

Last Updated: 4 April 2016
Article by Emma Radmore and Rosali Pretorius

This article looks at PRA's plans to change its rules to implement the passporting and algorithmic trading requirements of MiFID 2

MiFID 2 implementation timeline

Currently, the MiFID 2 package is still scheduled to take effect on 3 January 2017. Member States are supposed to have finalised necessary changes to domestic laws by 3 July 2016.

It is now clear the application deadline will not be met, because of a combination of the European Commission having failed to meet its deadlines to produce level 2 legislation and endorse technical standards ESMA had produced, and significant concern that firms and trading venues would not have long enough from the time all relevant standards were finalised to put in place necessary policies and procedures. Legislation is being prepared at EU level to delay the application date and related deadlines by one year.

However, this does not mean that everything can stop for a year. The UK regulators have forged ahead, with several discussion and consultation papers already published. Now PRA has published its first major paper, looking at changes it will need to make to its Rulebook, of which relevant firms it regulates must be aware. PRA notes there has in fact been no proposal at EU level to delay the 3 July 2016 transposition date – and indeed, many discussions around application delay have stressed the delay is to give firms time to prepare once the final rules are in place, rather than to provide a breathing space for regulators to make the final rules.

Which firms will be affected?

The rule changes will affect PRA-designated banks, building societies, investment firms and their qualifying parent undertakings –financial holding companies and mixed financial holding companies, as well as credit institutions, investment firms and financial institutions that are subsidiaries of these firms.

What does the paper cover?

This paper covers two specific areas:

  • extension of scope from MiFID to MiFID 2 and harmonisation of the passporting regime; and
  • systems and controls for firms that undertake algorithmic trading and provide direct electronic access (DEA) to trade venues.

PRA will consult separately on other necessary rule changes.

PRA's approach to MiFID 2 implementation

PRA notes that in some cases its existing rules are sufficient for transposition purposes, but that it has identified already several provisions within MiFID 2 and MiFIR which will require change to its rules. It has aligned its proposals to those FCA has already published.


PRA notes MiFID 2 makes some "small but important" changes to the current passporting regime that will affect dual-regulated firms. Specifically it extends:

  • the range of passportable investment services and activities, to include the operation of an organised trading facility (OTF); and
  • the range of investments to include the new instrument of emissions allowances.

PRA says existing passports will remain valid and unchanged but firms wishing to include the new activities or instruments will need to amend their passport. They should use the existing PRA procedures for a change in particulars. However, ESMA has published standard templates for notifications. Once the Commission has approved these, investment firms and, to the extent relevant, credit institutions, should use these forms. PRA proposes:

  • to delete its existing forms and link directly to the EU forms; and
  • to extend its current CRD 4 passport notification declaration form to notifications under MiFID 2 and make minor changes to the declaration.

Where firms want to passport MiFID activities under CRD 4, PRA will continue to process applications as it currently does and in compliance with relevant EBA forms. However, it notes that credit institutions should be aware they will need to comply with MiFID 2 standards if using MiFID 2 tied agents.

Algorithmic trading

To date, no PRA rule has focussed on algorithmic trading. To comply with the MiFID 2 requirements, PRA proposes to create a new part of the PRA Rulebook, called the Algorithmic Trading Part. This will apply to any CRR firm (including credit institutions) that engages in algorithmic trading or provides DEA to a trading venue.

PRA says its proposals largely mirror FCA's, and that the new Part should be read in conjunction with several existing parts of the Rulebook that address organisational requirements, systems and controls and compliance. However, it says its proposals have to focus on the safety and soundness of firms, whereas FCA's focus is on preventing abuse of the markets. PRA knows dual-regulated firms will be interested in how both regulators deal with supervising algorithmic trading and plans to provide further clarity in due course.

PRA proposes to require firms that carry out algorithmic trading to ensure their trading systems:

  • are resilient and have sufficient capacity;
  • are subject to appropriate trading thresholds and limits; and
  • prevent the sending of erroneous orders or contribute to a disorderly market.

Firms will also need to put in place tested and monitored business continuity arrangements to guard against the risks of failure.

PRA does not propose to require firms to notify it if they engage in algorithmic trading as all firms that do so will need to notify FCA. Similarly they may notify only FCA of the trading venue they use, but should notify PRA if there is a material change to their business. PRA also plans to impose record keeping requirements covering algorithmic trading strategies, parameters and limits and put in place specific requirements for high frequency trading.

Firms providing DEA will need to:

  • put in place systems and controls;
  • review suitability of clients using the service;
  • prevent clients from exceeding appropriate pre-set trading and credit thresholds;
  • prevent trading by clients that may cause risks to the firm; and
  • keep appropriate records.

Changes to rules

PRA has published for consultation:

  • the PRA Rulebook: Passporting instrument; and
  • the PRA Rulebook: CRR firms: Algorithmic trading instrument.

What happens next?

PRA asks for comments by 27 May. It is of course consulting now without the benefit of the final form Level 2 legislation or technical standards, and may have to change its proposals once the EU finalises the delegated legislation.

It seems highly optimistic to think that the final rules will be in place by 3 July.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions