In a Consultation Paper CP16/19 published in July 2016, the Financial Conduct Authority of the UK (the "FCA") requested comments on proposed changes to its Handbook to implement the Markets in Financial Instruments Directive ("MiFID") II, which becomes effective on January 3, 2018. The FCA noted that it will keep the proposals under review while it assesses whether any amendments will be required due to changes in the UK's regulatory framework resulting from negotiations following the UK's vote to leave the EU. The FCA reminded market participants in its recent statement that they must continue to abide by their obligations under UK law, including those derived from EU law, and continue with implementation plans for legislation that is still to come into effect.

The Consultation Paper solicited comments on proposed changes in the following areas of the FCA Handbook:

  • Commodity Derivatives – a new section of the Market Conduct Sourcebook to set out guidance and directions on MiFID II's regime of position limits, position management and position reporting for commodity derivatives contracts;
  • Supervision – updates of requirements to: (i) notify the FCA of breaches of requirements and provide information that is accurate and complete to take into account the introduction of the Markets in Financial Instruments Regulation and non-Financial Services and Markets Authority Treasury implementing regulations, (ii) transitional provisions for transaction reporting to take account of the revocation of the existing MiFID implementing regulation, and (iii) changes, building on those proposed in CP15/43, to passporting requirements;
  • Prudential Standards – changes to FCA prudential sourcebooks to reflect MiFID II's introduction of the new investment service of operating an Organized Trading Facility and the abolition of the exemption for a local firm;
  • Management – new management body requirements, key organizational requirements and a proposed approach to how the management body and organizational requirements will apply to branches of non-EU firms and firms exempt under Article 3 of MiFID II;
  • Staff Remuneration – a new section in Senior Management Arrangements, Systems and Controls ("SYSC") concerning remuneration requirements for sales staff;
  • Whistleblowing – a single chapter in SYSC that implements MiFID II whistleblower requirements alongside existing domestic obligations;
  • Client Assets Sourcebook – a single rulebook approach to Client Assets Sourcebook requirements which would make the changes for all designated investment business;
  • Complaint Handling – enhanced complaint handling rules in MiFID II which would extend to a wider range of clients; and
  • Fees Manual – an established initial and ongoing cost for firms that wish to apply to: (i) operate an Organized Trading Facility or vary their permission to do so, (ii) operate a Multilateral Trading Facility, or (iii) connect to the FCA's Market Data Processor.

Comments on the Consultation Paper must be submitted by October 28, 2016.

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