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Commission Delegated Regulation (EU) 2017/565Show full title

Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (Text with EEA relevance)

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CHAPTER IU.K.SCOPE AND DEFINITIONS

[F1Article A1U.K. Application

1.Subject to paragraph 2, this Regulation applies to—

(a)an investment firm which has its head office in the United Kingdom;

(b)a person authorised by the FCA to provide a data reporting service under the [F2Data Reporting Services Regulations 2024];

(c)a market operator which has its registered office (or if it has no registered office, its head office) in the United Kingdom, including any UK regulated markets they operate.

2.This Regulation does not apply to—

(a)any person excluded from the definition of “investment firm” in Schedule 3 to the Regulated Activities Order;

(b)any firm which has permission under Part 4A of FSMA to carry on regulated activities as an exempt investment firm, within the meaning of regulation 8 of the Markets in Financial Instruments Regulations 2017.]

Textual Amendments

Article 1U.K.Subject-matter and scope

1.Chapter II, and Sections 1 to 4, Articles 59(4) and 60 and Sections 6 and 8 of Chapter III and, to the extent they relate to those provisions, Chapter I and Section 9 of Chapter III and Chapter IV of this Regulation shall apply to management companies [F3in relation to the services described in paragraph 1A.]

[F41A.The services referred to in paragraph 1 are—

(a)management of portfolios of investments, including those owned by pension funds, in accordance with mandates given by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Part 1 of Schedule 2 to the Regulated Activities Order;

(b)investment advice concerning one or more of the instruments referred to in sub-paragraph (a);

(c)safe-keeping and administration in relation to units of collective investments undertakings; and

(d)reception and transmission of orders in relation to financial instruments.]

2.References to investment firms shall encompass credit institutions and references to financial instruments shall encompass structured deposits in relation to all the requirements [F5(so far as relevant) in Chapters II to IV of this Regulation].

[F63.Chapters I, II, III and VI apply to relevant firms.

4.Chapters IV and V apply to a firm which has temporary permission to operate an organised trading facility as a branch in the United Kingdom under the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.

5.If—

(a)a relevant firm complies with a requirement in Chapter II, III or VI of Commission Delegated Regulation (EU) 2017/565 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that directive as it has effect in EU law (“the EEA requirement”) in relation to the services it provides in the United Kingdom; and

(b)the EEA requirement has equivalent effect to a requirement in this Regulation as it applies in the United Kingdom (“the UK requirement”),

the firm is to be treated as complying with the UK requirement.

6.For the purposes of this Article “relevant firm” means an investment firm or credit institution which has temporary permission to carry on a regulated activity which is any of the investment services and activities in the United Kingdom under the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018.]

Textual Amendments

Article 2U.K.Definitions

For the purposes of this Regulation, the following definitions shall apply:

(1)

‘relevant person’ in relation to an investment firm, means any of the following:

(a)

a director, partner or equivalent, manager or tied agent of the firm;

(b)

a director, partner or equivalent, or manager of any tied agent of the firm;

(c)

an employee of the firm or of a tied agent of the firm, as well as any other natural person whose services are placed at the disposal and under the control of the firm or a tied agent of the firm and who is involved in the provision by the firm of investment services and activities;

(d)

a natural person who is directly involved in the provision of services to the investment firm or to its tied agent under an outsourcing arrangement for the purpose of the provision by the firm of investment services and activities;

(2)

‘financial analyst’ means a relevant person who produces the substance of investment research;

(3)

‘outsourcing’ means an arrangement of any form between an investment firm and a service provider by which that service provider performs a process, a service or an activity which would otherwise be undertaken by the investment firm itself;

(3a)

‘person with whom a relevant person has a family relationship’ means any of the following:

(a)

the spouse of the relevant person or any partner of that person considered by national law as equivalent to a spouse;

(b)

a dependent child or stepchild of the relevant person;

(c)

any other relative of the relevant person who has shared the same household as that person for at least one year on the date of the personal transaction concerned;

(4)

‘securities financing transaction’ means security financing transaction as defined in Article 3(11) of Regulation (EU) 2015/2365 of the European Parliament and of the Council(1).

(5)

‘remuneration’ means all forms of payments or financial or non-financial benefits provided directly or indirectly by firms to relevant persons in the provision of investment or ancillary services to clients;

(6)

‘commodity’ means any goods of a fungible nature that are capable of being delivered, including metals and their ores and alloys, agricultural products, and energy such as electricity.

(7)

[F7“portfolio management” means managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments;

(8)

“retail client” means a client who is not a professional client;

(9)

“limit order” means an order to buy or sell a financial instrument at its specified price limit or better and for a specified size;

(10)

“management company” has the meaning given in section 237(2) of FSMA;

(11)

“tied agent” means a natural or legal person, who, under the full and unconditional responsibility of only one investment firm on whose behalf it acts—

(a)

promotes investment or ancillary services to clients or prospective clients;

(b)

receives and transmits instructions or orders from the client in respect of investment services or financial instruments; or

(c)

places financial instruments or provides advice to clients or prospective clients in respect of those financial instruments or services;

(12)

“Group” has the meaning given in section 421 of FSMA;

(13)

“durable medium” means any instrument which—

(a)

enables a client to store information addressed personally to that client in a way accessible for future reference and for a period of time adequate for the purposes of the information; and

(b)

allows the unchanged reproduction of the information stored;

(14)

references in this Regulation to a sourcebook are to a sourcebook in the Handbook of Rules and Guidance published by the FCA containing rules made by that Authority under FSMA as the sourcebook has effect on [F81st December 2021];

(15)

references in this Regulation to the PRA rulebook are to the rulebook published by the PRA containing rules made by that Authority under FSMA as the rulebook has effect on IP completion day;

(16)

References to “UK law on markets in financial instruments” are to the law of the United Kingdom which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2014/65/EU and its implementing measures—

(a)

as they have effect on IP completion day, in the case of rules made by F9... the PRA under FSMA, F10...

(aa)

[F11as they have effect on 1 December 2021, in the case of rules made by the FCA under FSMA, and]

(b)

as amended from time to time, in all other cases.

16A

[F12“Directive 2013/36/EU UK law” means the law of the United Kingdom or any part of it, which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2013/36/EU and its implementing measures:

(a)

as it has effect on 1 January 2022, in the case of rules made by the PRA under FSMA; and

(b)

as amended from time to time, in all other cases.]

16B

[F12“Part 9C rules” has the meaning given in section 143F(1) of FSMA.]

16C

[F12“CRR rules” has the meaning given in section 144A of FSMA.]

(17)

In this Regulation—

(a)

any expression which is used in Regulation (EU) No 600/2014 (as amended by the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018) has the same meaning as in that Regulation;

(b)

subject to point (a), any expression which is used in the Markets in Financial Instruments Regulations 2017 (as so amended) has the same meaning as in those Regulations;

(c)

subject to point (a), any expression which is used in the [F13Data Reporting Services Regulations 2024] (as so amended) has the same meaning as in those Regulations.]

Textual Amendments

Article 3U.K.Conditions applying to the provision of information

1.Where, for the purposes of this Regulation, information is required to be provided in a durable medium [F14to [F15clients or potential clients],]F16... investment firms [F17must provide that information in electronic format, subject to paragraphs 1ZA and 1A.]

[F181ZAWhere the client or potential client to whom the information is required to be provided is a retail client or potential retail client, investment firms must provide that information in electronic format if—

(a)the retail client or potential retail client has been informed of the right to receive the information on paper instead of in electronic format; and

(b)the retail client or potential retail client has not requested the information on paper.]

[F191A.Where the client or potential client is a retail client, or potential retail client, who has requested to receive the information on paper, that information must be provided on paper and free of charge.

F201B.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

2.Where, pursuant to Article 46, 47, 48, 49, 50 or 66(3) of this Regulation, an investment firm provides information to a client by means of a website and that information is not addressed personally to the client, investment firms shall ensure that the following conditions are satisfied:

(a)the provision of that information in that medium is appropriate to the context in which the business between the firm and the client is, or is to be, carried on;

(b)[F21in the case of a retail client,] the client must specifically consent to the provision of that information in that form;

(c)the client must be notified electronically of the address of the website, and the place on the website where the information may be accessed;

(d)the information must be up to date;

(e)the information must be accessible continuously by means of that website for such period of time as the client may reasonably need to inspect it.

3.For the purposes of this Article, the provision of information by means of electronic communications shall be treated as appropriate to the context in which the business between the firm and the client is, or is to be, carried on where there is evidence that the client has regular access to the internet. The provision by the client of an e-mail address for the purposes of the carrying on of that business shall be treated as such evidence.

Textual Amendments

Article 4U.K.Provision of investment service in an incidental manner F22...

For the purpose of [F23section 327(4) of FSMA and the exemption in paragraph 1(d) of Schedule 3 to the Regulated Activities Order], an investment service shall be deemed to be provided in an incidental manner in the course of a professional activity where the following conditions are satisfied:

(a)

a close and factual connection exists between the professional activity and the provision of the investment service to the same client, such that the investment service can be regarded as accessory to the main professional activity;

(b)

the provision of investment services to the clients of the main professional activity does not aim to provide a systematic source of income to the person providing the professional activity; and

(c)

the person providing the professional activity does not market or otherwise promote his ability to provide investment services, except where these are disclosed to clients as being accessory to the main professional activity.

Textual Amendments

Article 5U.K.Wholesale energy products that must be physically settled F24...

1.For the purposes of [F25paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order], a wholesale energy product must be physically settled where all the following conditions are satisfied:

(a)it contains provisions which ensure that parties to the contract have proportionate arrangements in place to be able to make or take delivery of the underlying commodity; a balancing agreement with the Transmission System Operator in the area of electricity and gas shall be considered a proportionate arrangement where the parties to the agreement have to ensure physical delivery of electricity or gas.

(b)it establishes unconditional, unrestricted and enforceable obligations of the parties to the contract to deliver and take delivery of the underlying commodity;

(c)it does not allow either party to replace physical delivery with cash settlement;

(d)the obligations under the contract cannot be offset against obligations from other contracts between the parties concerned, without prejudice to the rights of the parties to the contract, to net their cash payment obligations.

For the purposes of point (d), operational netting in power and gas markets shall not be considered as offsetting of obligations under a contract against obligations from other contracts.

2.Operational netting shall be understood as any nomination of quantities of power and gas to be fed into a gridwork upon being so required by the rules or requests of a Transmission System Operator as defined in Article 2(4) of Directive 2009/72/EC of the European Parliament and of the Council(2) for an entity performing an equivalent function to a Transmission System Operator at the national level. Any nomination of quantities based on operational netting shall not be at the discretion of the parties to the contract.

3.For the purposes of [F26paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order], force majeure shall include any exceptional event or a set of circumstances which are outside the control of the parties to the contract, which the parties to the contract could not have reasonably foreseen or avoided by the exercise of appropriate and reasonable due diligence and which prevent one or both parties to the contract from fulfilling their contractual obligations.

4.For the purposes of [F26paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order] bona fide inability to settle shall include any event or set of circumstances, not qualifying as force majeure as referred to in paragraph 3, which are objectively and expressly defined in the contract terms, for one or both parties to the contract, acting in good faith, not to fulfil their contractual obligations.

5.The existence of force majeure or bona fide inability to settle provisions shall not prevent a contract from being considered as ‘physically settled’ for the purposes of [F26paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order].

6.The existence of default clauses providing that a party is entitled to financial compensation in the case of non- or defective performance of the contract shall not prevent the contract from being considered as ‘physically settled’ within the meaning of [F26paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order].

7.The delivery methods for the contracts being considered as ‘physically settled’ within the meaning of [F26paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order] shall include at least:

(a)physical delivery of the relevant commodities themselves;

(b)delivery of a document giving rights of an ownership nature to the relevant commodities or the relevant quantity of the commodities concerned;

(c)other methods of bringing about the transfer of rights of an ownership nature in relation to the relevant quantity of goods without physically delivering them, including notification, scheduling or nomination to the operator of an energy supply network, that entitles the recipient to the relevant quantity of the goods.

Textual Amendments

Article 6U.K.Energy derivative contracts relating to oil and coal and wholesale energy products F27...

1.For the purposes of [F28paragraph 6 of Part 1 of Schedule 2 to the Regulated Activities Order], energy derivative contracts relating to oil shall be contracts with mineral oil, of any description and petroleum gases, whether in liquid or vapour form, including products, components and derivatives of oil and oil transport fuels, including those with biofuel additives, as an underlying.

2.For the purposes of [F29paragraph 6 of Part 1 of Schedule 2 to the Regulated Activities Order], energy derivative contracts relating to coal shall be contracts with coal, defined as a black or dark-brown combustible mineral substance consisting of carbonised vegetable matter, used as a fuel, as an underlying.

3.For the purposes of [F30paragraphs 6 and 7 of Part 1 of Schedule 2 to the Regulated Activities Order] derivative contracts that have the characteristics of wholesale energy products as defined in Article 2(4) of Regulation (EU) No 1227/2011 shall be derivatives with electricity or natural gas as an underlying, in accordance with points (b) and (d) of Article 2(4) of that Regulation.

Textual Amendments

Article 7U.K.Other derivative financial instruments F31...

1.For the purposes of [F32paragraph 7 of Part 1 of Schedule 2 to the Regulated Activities Order], a contract which is not a spot contract in accordance with paragraph 2 and which is not for commercial purposes as laid down in paragraph 4 shall be considered as having the characteristics of other derivative financial instruments where it satisfies the following conditions:

(a)it meets one of the following criteria:

(i)

[F33it is traded on a third country trading venue which is a regulated market, an MTF or an OTF (as defined by Article 2(1)(13), (14) and (15) respectively of the markets in financial instruments regulation);]

(ii)

it is expressly stated to be traded on, or is subject to the rules of, [F34a UK regulated market, a UK MTF, a UK OTF (as defined by Article 2(1)(13A), (14A) and (15A) respectively of the markets in financial instruments regulation)] or such a third country trading venue;

(iii)

it is equivalent to a contract traded on [F35a UK regulated market, a UK MTF, a UK OTF] or such a third country trading venue, with regards to the price, the lot, the delivery date and other contractual terms;

(b)it is standardised so that the price, the lot, the delivery date and other terms are determined principally by reference to regularly published prices, standard lots or standard delivery dates.

2.A spot contract for the purposes of paragraph 1 shall be a contract for the sale of a commodity, asset or right, under the terms of which delivery is scheduled to be made within the longer of the following periods:

(a)2 trading days;

(b)the period generally accepted in the market for that commodity, asset or right as the standard delivery period.

A contract shall not be considered a spot contract where, irrespective of its explicit terms, there is an understanding between the parties to the contract that delivery of the underlying is to be postponed and not to be performed within the period referred to in paragraph 2.

3.For the purposes of [F36paragraph 10 of Part 1 of Schedule 2 to the Regulated Activities Order], a derivative contract relating to an underlying referred to in that Section or in Article 8 of this Regulation shall be considered to have the characteristics of other derivative financial instruments where one of the following conditions is satisfied:

(a)it is settled in cash or may be settled in cash at the option of one or more of the parties, otherwise than by reason of a default or other termination event;

(b)it is traded on a regulated market, an MTF, an OTF, or a third country trading venue that performs a similar function to a regulated market, MTF or an OTF;

(c)the conditions laid down in paragraph 1 are satisfied in relation to that contract.

4.A contract shall be considered to be for commercial purposes for the purposes of [F37paragraph 7 of Part 1 of Schedule 2 to the Regulated Activities Order], and as not having the characteristics of other derivative financial instruments for the purposes of [F38paragraphs 7 and 10 of Part 1 of Schedule 2 to the Regulated Activities Order], where the following conditions are both met:

(a)it is entered into with or by an operator or administrator of an energy transmission grid, energy balancing mechanism or pipeline network,

(b)it is necessary to keep in balance the supplies and uses of energy at a given time, including the case when the reserve capacity contracted by an electricity transmission system operator as defined in Article 2(4) of Directive 2009/72/EC is being transferred from one prequalified balancing service provider to another prequalified balancing service provider with the consent of the relevant transmission system operator.

Textual Amendments

Article 8U.K.Derivatives under [F39paragraph 10 of Part 1 of Schedule 2 to the Regulated Activities Order] F40...

In addition to derivative contracts expressly referred to in [F41paragraph 10 of Part 1 of Schedule 2 to the Regulated Activities Order], a derivative contract shall be subject to the provisions in [F42that Part] where it meets the criteria set out in [F42that Part] and in Article 7(3) of this Regulation and it relates to any of the following:

(a)

telecommunications bandwidth;

(b)

commodity storage capacity;

(c)

transmission or transportation capacity relating to commodities, whether cable, pipeline or other means with the exception of transmission rights related to electricity transmission cross zonal capacities when they are, on the primary market, entered into with or by a transmission system operator or any persons acting as service providers on their behalf and in order to allocate the transmission capacity;

(d)

an allowance, credit, permit, right or similar asset which is directly linked to the supply, distribution or consumption of energy derived from renewable resources, except where the contract is already within the scope of [F43paragraph 4 of Part 1 of Schedule 2 to the Regulated Activities Order];

(e)

a geological, environmental or other physical variable, except if the contract is relating to any [F44emission allowances referred to in paragraph 11 of Part 1 of Schedule 2 to the Regulated Activities Order];

(f)

any other asset or right of a fungible nature, other than a right to receive a service, that is capable of being transferred;

(g)

an index or measure related to the price or value of, or volume of transactions in any asset, right, service or obligation;

(h)

an index or measure based on actuarial statistics.

Textual Amendments

Article 9U.K.Investment advice F45...

[F46For the purposes of the list of investment services and activities in Part 3 of Schedule 2 to the Regulated Activities Order, “investment advice” means the provision of personal recommendations to a client, either upon its request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments. For these purposes], a personal recommendation shall be considered a recommendation that is made to a person in his capacity as an investor or potential investor, or in his capacity as an agent for an investor or potential investor.

That recommendation shall be presented as suitable for that person, or shall be based on a consideration of the circumstances of that person, and shall constitute a recommendation to take one of the following sets of steps:

(a)

to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument;

(b)

to exercise or not to exercise any right conferred by a particular financial instrument to buy, sell, subscribe for, exchange, or redeem a financial instrument.

A recommendation shall not be considered a personal recommendation if it is issued exclusively to the public.

Textual Amendments

Article 10U.K.Characteristics of other derivative contracts relating to currencies

1.For the purposes of [F47paragraph 4 of Part 1 of the Schedule 2 to the Regulated Activities Order], other derivative contracts relating to a currency shall not be a financial instrument where the contract is one of the following:

(a)a spot contract within the meaning of paragraph 2 of this Article,

(b)a means of payment that:

(i)

must be settled physically otherwise than by reason of a default or other termination event;

(ii)

is entered into by at least a person which is not a financial counterparty within the meaning of Article 2(8) of Regulation (EU) No 648/2012 of the European Parliament and of the Council(3);

(iii)

is entered into in order to facilitate payment for identifiable goods, services or direct investment; and

(iv)

is not traded on a trading venue.

2.A spot contract for the purposes of paragraph 1 shall be a contract for the exchange of one currency against another currency, under the terms of which delivery is scheduled to be made within the longer of the following periods:

(a)2 trading days in respect of any pair of the major currencies set out in paragraph 3;

(b)for any pair of currencies where at least one currency is not a major currency, the longer of 2 trading days or the period generally accepted in the market for that currency pair as the standard delivery period;

(c)where the contract for the exchange of those currencies is used for the main purpose of the sale or purchase of a transferable security or a unit in a collective investment undertaking, the period generally accepted in the market for the settlement of that transferable security or a unit in a collective investment undertaking as the standard delivery period or 5 trading days, whichever is shorter.

A contract shall not be considered a spot contract where, irrespective of its explicit terms, there is an understanding between the parties to the contract that delivery of the currency is to be postponed and not to be performed within the period set out in the first subparagraph.

3.The major currencies for the purposes of paragraph 2 shall only include the US dollar, Euro, Japanese yen, Pound sterling, Australian dollar, Swiss franc, Canadian dollar, Hong Kong dollar, Swedish krona, New Zealand dollar, Singapore dollar, Norwegian krone, Mexican peso, Croatian kuna, Bulgarian lev, Czech koruna, Danish krone, Hungarian forint, Polish złoty and Romanian leu.

4.For the purposes of paragraph 2, a trading day shall mean any day of normal trading in the jurisdiction of both the currencies that are exchanged pursuant to the contract for the exchange of those currencies and in the jurisdiction of a third currency where any of the following conditions are met:

(a)the exchange of those currencies involves converting them through that third currency for the purposes of liquidity;

(b)the standard delivery period for the exchange of those currencies references the jurisdiction of that third currency.

Textual Amendments

Article 11U.K.Money-market instruments F48...

[F491].Money-market instruments F50... shall include treasury bills, certificates of deposits, commercial papers and other instruments with substantively equivalent features where they have the following characteristics:

(a)

they have a value that can be determined at any time;

(b)

they are not derivatives;

(c)

they have a maturity at issuance of 397 days or less.

[F512.For the purposes of this Article, “money market instruments” means those classes of instruments which are normally dealt with on the money market, excluding instruments of payment.]

Textual Amendments

Article 12U.K.Systematic internalisers for shares, depositary receipts, ETFs, certificates and other similar financial instruments F52...

[F531.]An investment firm shall be considered to be a systematic internaliser in accordance with [F54Article 2(1)(12) of Regulation (EU) No 600/2014] in respect of each share, depositary receipt, exchange traded fund (ETF), certificate and other similar financial instrument where it internalises according to the following criteria:

(a)

on a frequent and systematic basis in the financial instrument for which there is a liquid market as defined in Article 2(1)(17)(b) of Regulation (EU) No 600/2014 where during the past 6 months:

(i)

the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 0,4 % of the total number of transactions in the relevant financial instrument executed in [F55the relevant area] on any trading venue or OTC during the same period;

(ii)

the OTC transactions carried out by it on own account when executing client orders in the relevant financial instrument take place on average on a daily basis;

(b)

on a frequent and systematic basis in the financial instrument for which there is not a liquid market as defined in Article 2(1)(17)(b) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account when executing client orders takes place on average on a daily basis;

(c)

on a substantial basis in the financial instrument where the size of OTC trading carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than either:

(i)

15 % of the total turnover in that financial instrument executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC;

(ii)

0,4 % of the total turnover in that financial instrument executed in [F56the relevant area] on a trading venue or OTC.

[F572.For the purposes of this Article, and Articles 13 to 16, “relevant area” in relation to a financial instrument, means the United Kingdom and such other countries or regions as have been specified by the FCA by direction for the purposes of Article F58... 9 or 14 of Regulation (EU) No 600/2014.

3.During the transitional period, within the meaning of Article [F5914(6D)] of Regulation (EU) No 600/2014, whether the criteria set out in paragraph 1 are satisfied is to be calculated in accordance with Article 16ZA.]

Textual Amendments

Article 13U.K.Systematic internalisers for bonds F60...

[F611].An investment firm shall be considered to be a systematic internaliser in accordance with [F62Article 2(1)(12) of Regulation (EU) No 600/2014] in respect of all bonds belonging to a class of bonds issued by the same entity or by any entity within the same group where, in relation to any such bond, it internalises according to the following criteria:

(a)

on a frequent and systematic basis in a bond for which there is a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months:

(i)

the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 2,5 % of the total number of transactions in the relevant bond executed in [F63the relevant area] on any trading venue or OTC during the same period;

(ii)

the OTC transactions carried out by it on own account when executing client orders in the relevant financial instrument take place on average once a week;

(b)

on a frequent and systematic basis in a bond for which there is not a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account when executing client orders take place on average once a week;

(c)

on a substantial basis in a bond where the size of OTC trading carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than any of the following:

(i)

25 % of the total turnover in that bond executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC;

(ii)

1 % of the total turnover in that bond executed in [F64the relevant area] on a trading venue or OTC.

[F652.During the transitional period, within the meaning of Article [F6614(6D)] of Regulation (EU) No 600/2014, whether the criteria set out in paragraph 1 are satisfied is to be calculated in accordance with Article 16ZA.]

Textual Amendments

Article 14U.K.Systematic internalisers for structured finance products F67...

[F681].An investment firm shall be considered to be a systematic internaliser in accordance with [F69Article 2(1)(12) of Regulation (EU) No 600/2014] in respect of all structured finance products belonging to a class of structured finance products issued by the same entity or by any entity within the same group where, in relation to any such structured finance product, it internalises according to the following criteria:

(a)

on a frequent and systematic basis in a structured finance product for which there is a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months:

(i)

the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 4 % of the total number of transactions in the relevant structured finance product executed in [F70the relevant area] on any trading venue or OTC during the same period;

(ii)

the OTC transactions carried out by it on own account when executing client orders in the relevant financial instrument take place on average once a week;

(b)

on a frequent and systematic basis in a structured finance product for which there is not a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account when executing client orders take place on average once a week;

(c)

on a substantial basis in a structured finance product where the size of OTC trading carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than any of the following:

(i)

30 % of the total turnover in that structured finance product executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC;

(ii)

2,25 % of the total turnover in that structured finance product executed in [F71the relevant area] on a trading venue or OTC.

[F722.During the transitional period, within the meaning of Article [F7314(6D)] of Regulation (EU) No 600/2014, whether the criteria set out in paragraph 1 are satisfied is to be calculated in accordance with Article 16ZA.]

Textual Amendments

Article 15U.K.Systematic internalisers for derivatives F74...

[F751].An investment firm shall be considered to be a systematic internaliser in accordance with [F76Article 2(1)(12) of Regulation (EU) No 600/2014] in respect of all derivatives belonging to a class of derivatives where, in relation to any such derivative, it internalises according to the following criteria:

(a)

on a frequent and systematic basis in a derivative for which there is a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months:

(i)

the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 2,5 % of the total number of transactions in the relevant class of derivatives executed in [F77the relevant area] on any trading venue or OTC during the same period;

(ii)

the OTC transactions carried out by it on own account when executing client orders in this class of derivatives take place on average once a week;

(b)

on a frequent and systematic basis in a derivative for which there is not a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account in the relevant class of derivative when executing client orders takes place on average once a week;

(c)

on a substantial basis in a derivative where the size of OTC trading carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than any of the following:

(i)

25 % of the total turnover in that class of derivatives executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC; or

(ii)

1 % of the total turnover in that class of derivatives executed in [F78the relevant area] on a trading venue or OTC.

[F792.During the transitional period, within the meaning of Article [F8014(6D)] of Regulation (EU) No 600/2014, whether the criteria set out in paragraph 1 are satisfied is to be calculated in accordance with Article 16ZA.]

Textual Amendments

Article 16U.K.Systematic internalisers for emission allowances F81...

[F821].An investment firm shall be considered to be a systematic internaliser in accordance with [F83Article 2(1)(12) of Regulation (EU) No 600/2014] in respect of emission allowances where, in relation to any such instrument, it internalises according to the following criteria:

(a)

on a frequent and systematic basis in an emission allowance for which there is a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months:

(i)

the number of OTC transactions carried out by it on own account when executing client orders is equal to or larger than 4 % of the total number of transactions in the relevant type of emission allowances executed in [F84the relevant area] on any trading venue or OTC during the same period;

(ii)

the OTC transactions carried out by it on own account when executing client orders in this type of emission allowances take place on average once a week;

(b)

on a frequent and systematic basis in an emission allowance for which there is not a liquid market as defined in Article 2(1)(17)(a) of Regulation (EU) No 600/2014 where during the past 6 months the OTC transactions carried out by it on own account in the relevant type of emission allowances when executing client orders takes place on average once a week;

(c)

on a substantial basis in an emission allowance where the size of OTC trading carried out by it on own account when executing client orders is, during the past 6 months, equal to or larger than any of the following:

(i)

30 % of the total turnover in that type of emission allowances executed by the investment firm on own account or on behalf of clients and executed on a trading venue or OTC;

(ii)

2,25 % of the total turnover in that type of emission allowance executed in [F85the relevant area] on a trading venue or OTC.

[F862.During the transitional period, within the meaning of Article [F8714(6D)] of Regulation (EU) No 600/2014, whether the criteria set out in paragraph 1 are satisfied is to be calculated in accordance with Article 16ZA.]

Textual Amendments

[F88Article 16ZAU.K. Transitional period: data for calculations

1.During the transitional period, within the meaning of Article [F8914(6D)] of Regulation (EU) No 600/2014, for the purposes of determining whether the criteria set out in Articles 12 to 16 are satisfied, firms must use data published by the FCA for the financial instrument in question to calculate—

(a)whether there is a liquid market for that financial instrument;

(b)the total number of transactions in that financial instrument executed in the relevant area on any trading venue or OTC;

(c)the total turnover for that financial instrument executed in the relevant area on a trading venue or OTC.

2.Where the FCA has not published relevant data for the financial instrument in question, firms must use the most recent data published before IP completion day by the European Securities and Markets Authority in relation to that financial instrument to calculate the questions set out in paragraph 1.

3.If neither the data described in paragraph 1 nor the data described in paragraph 2 are available in relation to the financial instrument in question, an investment firm is not a systematic internaliser within the definition given in Article 2(1)(12) of Regulation (EU) No 600/2014 unless it has chosen to opt in to the systematic internaliser regime.]

Textual Amendments

[F90 Article 16a U.K. Participation in matching arrangements

An investment firm shall not be considered to be dealing on own account for the purposes of [F91Article 2(1)(12) of Regulation (EU) No 600/2014] where that investment firm participates in matching arrangements entered into with entities outside its own group with the objective or consequence of carrying out de facto riskless back-to-back transactions in a financial instrument outside a trading venue.]

Textual Amendments

Article 17U.K.Relevant assessment periods F92...

The conditions set out in Articles 12 to 16 shall be assessed on a quarterly basis on the basis of data from the past 6 months. The assessment period shall start on the first working day of the months of January, April, July and October.

Newly issued instruments shall only be considered in the assessment when historical data covers a period of at least three months in the case of shares, depositary receipts, ETFs, certificates and other similar financial instruments, and six weeks in the case of bonds, structured finance products and derivatives.

Textual Amendments

Article 18U.K.Algorithmic trading F93...

For the purposes of further specifying the definition of algorithmic trading in accordance with [F94regulation 2(1) of the Markets in Financial Instruments Regulations 2017], a system shall be considered as having no or limited human intervention where, for any order or quote generation process or any process to optimise order-execution, an automated system makes decisions at any of the stages of initiating, generating, routing or executing orders or quotes according to pre-determined parameters.

Textual Amendments

Article 19U.K.High frequency algorithmic trading technique F95...

1.A high message intraday rate [F96for the purposes of the definition of “high-frequency algorithmic trading technique” in regulation 2(1) of the Markets in Financial Instruments Regulations 2017 and regulation 3(1) of the Recognition Requirements Regulations] shall consist of the submission on average of any of the following:

(a)at least 2 messages per second with respect to any single financial instrument traded on a trading venue;

(b)at least 4 messages per second with respect to all financial instruments traded on a trading venue.

2.For the purposes of paragraph 1, messages concerning financial instruments for which there is a liquid market in accordance with Article 2(1)(17) of Regulation (EU) No 600/2014 shall be included in the calculation. Messages introduced for the purpose of trading that fulfil [F97the criteria described in paragraph 2A] shall be included in the calculation.

[F982A.A market making strategy satisfies the criteria in this paragraph where the strategy (pursued by the investment firm as a member or participant in one or more trading venues), when dealing on own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the overall market.]

3.For the purposes of paragraph 1, messages introduced for the purpose of dealing on own account shall be included in the calculation. Messages introduced through other trading techniques than those relying on dealing on own account shall be included in the calculation where the firm's execution technique is structured in such a way as to avoid that the execution takes place on own account.

4.For the purposes of paragraph 1, for the calculation of high message intraday rate in relation to DEA providers, messages submitted by their DEA clients shall be excluded from the calculations [F99(and for the purposes of this paragraph, “DEA” means “direct electronic access” as defined in regulation 2(1) of the Markets in Financial Instruments Regulations 2017)].

5.For the purposes of paragraph 1, trading venues shall make available to the firms concerned, on request, estimates of the average number of messages per second on a monthly basis two weeks after the end of each calendar month, thereby taking into account all messages submitted during the preceding 12 months.

Textual Amendments

Article 20U.K.Direct electronic access F100...

1.A person shall be considered not capable of electronically transmitting orders relating to a financial instrument directly to a trading venue in accordance with [F101the definition of ‘direct electronic access’ in regulation 2(1) of the Markets in Financial Instruments Regulations 2017] where that person cannot exercise discretion regarding the exact fraction of a second of order entry and the lifetime of the order within that timeframe.

2.A person shall be considered not capable of such direct electronic order transmission where it takes place through arrangements for optimisation of order execution processes that determine the parameters of the order other than the venue or venues where the order should be submitted, unless these arrangements are embedded into the clients' systems and not into those of the member or participant of a regulated market or of an MTF or a client of an OTF.

Textual Amendments

CHAPTER IIU.K. ORGANISATIONAL REQUIREMENTS

SECTION 1U.K.Organisation

Article 21U.K.General organisational requirements F102...

1.Investment firms shall comply with the following organisational requirements:

(a)establish, implement and maintain decision-making procedures and an organisational structure which clearly and in documented manner specifies reporting lines and allocates functions and responsibilities;

(b)ensure that their relevant persons are aware of the procedures which must be followed for the proper discharge of their responsibilities;

(c)establish, implement and maintain adequate internal control mechanisms designed to secure compliance with decisions and procedures at all levels of the investment firm;

(d)employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them;

(e)establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the investment firm;

(f)maintain adequate and orderly records of their business and internal organisation;

(g)ensure that the performance of multiple functions by their relevant persons does not and is not likely to prevent those persons from discharging any particular function soundly, honestly, and professionally.

When complying with the requirements set out in the this paragraph, investment firms shall take into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business.

2.Investment firms shall establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question.

3.Investment firms shall establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to their systems and procedures, the preservation of essential data and functions, and the maintenance of investment services and activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of their investment services and activities.

4.Investment firms shall establish, implement and maintain accounting policies and procedures that enable them, at the request of the competent authority, to deliver in a timely manner to the competent authority financial reports which reflect a true and fair view of their financial position and which comply with all applicable accounting standards and rules.

5.Investment firms shall monitor and, on a regular basis, evaluate the adequacy and effectiveness of their systems, internal control mechanisms and arrangements established in accordance with paragraphs 1 to 4, and take appropriate measures to address any deficiencies.

Textual Amendments

Article 22U.K.Compliance F103...

1.Investment firms shall establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under [F104UK law on markets in financial instruments (“UK obligations”)], as well as the associated risks, and put in place adequate measures and procedures designed to minimise such risk and to enable the competent authorities to exercise their powers effectively under [F105UK law on markets in financial instruments].

Investment firms shall take into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business.

2.Investment firms shall establish and maintain a permanent and effective compliance function which operates independently and which has the following responsibilities:

(a)to monitor on a permanent basis and to assess, on a regular basis, the adequacy and effectiveness of the measures, policies and procedures put in place in accordance with the first subparagraph of paragraph 1, and the actions taken to address any deficiencies in the firm's compliance with its obligations;

(b)to advise and assist the relevant persons responsible for carrying out investment services and activities to comply with the firm's [F106UK obligations];

(c)to report to the management body, on at least an annual basis, on the implementation and effectiveness of the overall control environment for investment services and activities, on the risks that have been identified and on the complaints-handling reporting as well as remedies undertaken or to be undertaken;

(d)to monitor the operations of the complaints-handling process and consider complaints as a source of relevant information in the context of its general monitoring responsibilities.

In order to comply with points (a) and (b) of this paragraph, the compliance function shall conduct an assessment on the basis of which it shall establish a risk-based monitoring programme that takes into consideration all areas of the investment firm's investment services, activities and any relevant ancillary services, including relevant information gathered in relation to the monitoring of complaints handling. The monitoring programme shall establish priorities determined by the compliance risk assessment ensuring that compliance risk is comprehensively monitored.

3.In order to enable the compliance function referred to in paragraph 2 to discharge its responsibilities properly and independently, investment firms shall ensure that the following conditions are satisfied:

(a)the compliance function has the necessary authority, resources, expertise and access to all relevant information;

(b)a compliance officer is appointed and replaced by the management body and is responsible for the compliance function and for any reporting as to compliance required [F107in relation to its UK obligations and by] Article 25(2) of this Regulation;

(c)the compliance function reports on an ad-hoc basis directly to the management body where it detects a significant risk of failure by the firm to comply with its [F108UK obligations];

(d)the relevant persons involved in the compliance function are not involved in the performance of services or activities they monitor;

(e)the method of determining the remuneration of the relevant persons involved in the compliance function does not compromise their objectivity and is not likely to do so.

4.An investment firm shall not be required to comply with point (d) or point (e) of paragraph 3 where it is able to demonstrate that in view of the nature, scale and complexity of its business, and the nature and range of investment services and activities, the requirements under point (d) or (e) are not proportionate and that its compliance function continues to be effective. In that case, the investment firm shall assess whether the effectiveness of the compliance function is compromised. The assessment shall be reviewed on a regular basis.

Textual Amendments

Article 23U.K.Risk management F109...

1.Investment firms shall take the following actions relating to risk management:

(a)establish, implement and maintain adequate risk management policies and procedures which identify the risks relating to the firm's activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm;

(b)adopt effective arrangements, processes and mechanisms to manage the risks relating to the firm's activities, processes and systems, in light of that level of risk tolerance;

(c)monitor the following:

(i)

the adequacy and effectiveness of the investment firm's risk management policies and procedures;

(ii)

the level of compliance by the investment firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with point (b);

(iii)

the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant persons to comply with such arrangements, processes and mechanisms or follow such policies and procedures.

2.Investment firms shall, where appropriate and proportionate in view of the nature, scale and complexity of their business and the nature and range of the investment services and activities undertaken in the course of that business, establish and maintain a risk management function that operates independently and carries out the following tasks:

(a)implementation of the policy and procedures referred to in paragraph 1;

(b)provision of reports and advice to senior management in accordance with Article 25(2).

Where an investment firm does not establish and maintain a risk management function under the first sub-paragraph, it shall be able to demonstrate upon request that the policies and procedures which it is has adopted in accordance with paragraph 1 satisfy the requirements therein.

Textual Amendments

Article 24U.K.Internal audit F110...

Investment firms shall, where appropriate and proportionate in view of the nature, scale and complexity of their business and the nature and range of investment services and activities undertaken in the course of that business, establish and maintain an internal audit function which is separate and independent from the other functions and activities of the investment firm and which has the following responsibilities:

(a)

establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the investment firm's systems, internal control mechanisms and arrangements;

(b)

issue recommendations based on the result of work carried out in accordance with point (a) and verify compliance with those recommendations;

(c)

report in relation to internal audit matters in accordance with Article 25(2).

Textual Amendments

Article 25U.K.Responsibility of senior management F111...

1.Investment firms shall, when allocating functions internally, ensure that senior management, and, where applicable, the supervisory function, are responsible for ensuring that the firm complies with its obligations under [F112UK law on markets in financial instruments (“UK obligations”)]. In particular, senior management and, where applicable, the supervisory function shall be required to assess and periodically review the effectiveness of the policies, arrangements and procedures put in place to comply with [F113UK obligations] and to take appropriate measures to address any deficiencies.

The allocation of significant functions among senior managers shall clearly establish who is responsible for overseeing and maintaining the firm's organisational requirements. Records of the allocation of significant functions shall be kept up-to-date.

2.Investment firms shall ensure that their senior management receive on a frequent basis, and at least annually, written reports on the matters covered by Articles 22, 23 and 24 indicating in particular whether the appropriate remedial measures have been taken in the event of any deficiencies.

3.Investment firms shall ensure that where there is a supervisory function, it receives written reports on the matters covered by Articles 22, 23 and 24 on a regular basis.

4.For the purposes of this Article, the supervisory function shall be the function within an investment firm responsible for the supervision of its senior management.

Textual Amendments

Article 26U.K.Complaints handling F114...

1.Investment firms shall establish, implement and maintain effective and transparent complaints management policies and procedures for the prompt handling of clients' or potential clients' complaints. Investment firms shall keep a record of the complaints received and the measures taken for their resolution.

The complaints management policy shall provide clear, accurate and up-to-date information about the complaints-handling process. This policy shall be endorsed by the firm's management body.

2.Investment firms shall publish the details of the process to be followed when handling a complaint. Such details shall include information about the complaints management policy and the contact details of the complaints management function. The information shall be provided to clients or potential clients, on request, or when acknowledging a complaint. Investment firms shall enable clients and potential clients to submit complaints free of charge.

3.Investment firms shall establish a complaints management function responsible for the investigation of complaints. This function may be carried out by the compliance function.

4.When handling a complaint, investment firms shall communicate with clients or potential clients clearly, in plain language that is easy to understand and shall reply to the complaint without undue delay.

5.Investment firms shall communicate the firm's position on the complaint to clients or potential clients and inform the clients or potential clients about their options, including that they may be able to refer the complaint to an alternative dispute resolution entity, as defined in [F115regulation 4 of the Alternative Dispute Resolution Regulations 2015] or that the client may be able to take civil action.

6.Investment firms shall provide information on complaints and complaints-handling to the relevant competent authorities and, where applicable under national law, to an alternative dispute resolution (ADR) entity.

7.Investment firms' compliance function shall analyse complaints and complaints-handling data to ensure that they identify and address any risks or issues.

Textual Amendments

Article 27U.K.Remuneration policies and practices F116...

1.Investment firms shall define and implement remuneration policies and practices under appropriate internal procedures taking into account the interests of all the clients of the firm, with a view to ensuring that clients are treated fairly and their interests are not impaired by the remuneration practices adopted by the firm in the short, medium or long term.

Remuneration policies and practices shall be designed in such a way so as not to create a conflict of interest or incentive that may lead relevant persons to favour their own interests or the firm's interests to the potential detriment of any client.

2.Investment firms shall ensure that their remuneration policies and practices apply to all relevant persons with an impact, directly or indirectly, on investment and ancillary services provided by the investment firm or on its corporate behaviour, regardless of the type of clients, to the extent that the remuneration of such persons and similar incentives may create a conflict of interest that encourages them to act against the interests of any of the firm's clients.

3.The management body of the investment firm shall approve, after taking advice from the compliance function, the firm's remuneration policy. The senior management of the investment firm shall be responsible for the day-to-day implementation of the remuneration policy and the monitoring of compliance risks related to the policy.

4.Remuneration and similar incentives shall not be solely or predominantly based on quantitative commercial criteria, and shall take fully into account appropriate qualitative criteria reflecting compliance with the applicable regulations, the fair treatment of clients and the quality of services provided to clients.

A balance between fixed and variable components of remuneration shall be maintained at all times, so that the remuneration structure does not favour the interests of the investment firm or its relevant persons against the interests of any client.

Textual Amendments

Article 28U.K.Scope of personal transactions F117...

For the purposes of Article 29 and Article 37, a personal transaction shall be a trade in a financial instrument effected by or on behalf of a relevant person, where at least one of the following criteria are met:

(a)

the relevant person is acting outside the scope of the activities he carries out in his professional capacity;

(b)

the trade is carried out for the account of any of the following persons:

(i)

the relevant person;

(ii)

any person with whom he has a family relationship, or with whom he has close links;

(iii)

a person in respect of whom the relevant person has a direct or indirect material interest in the outcome of the trade, other than obtaining a fee or commission for the execution of the trade.

Textual Amendments

Article 29U.K.Personal transactions F118...

1.Investment firms shall establish, implement and maintain adequate arrangements aimed at preventing the activities set out in paragraphs 2, 3 and 4 in the case of any relevant person who is involved in activities that may give rise to a conflict of interest, or who has access to inside information within the meaning of Article 7(1) of Regulation (EU) No 596/2014 or to other confidential information relating to clients or transactions with or for clients by virtue of an activity carried out by him on behalf of the firm.

2.Investment firms shall ensure that relevant persons do not enter into a personal transaction which meets at least one of the following criteria:

(a)that person is prohibited from entering into it under Regulation (EU) No 596/2014;

(b)it involves the misuse or improper disclosure of that confidential information;

(c)it conflicts or is likely to conflict with an obligation of the investment firm under [F119UK law on markets in financial instruments].

3.Investment firms shall ensure that relevant persons do not advise or recommend, other than in the proper course of employment or contract for services, any other person to enter into a transaction in financial instruments which, if it were a personal transaction of the relevant person, would be covered by paragraph 2 or Article 37(2)(a) or (b) or Article 67(3).

4.Without prejudice to Article 10(1) of Regulation (EU) No 596/2014, investment firms shall ensure that relevant persons do not disclose, other than in the normal course of his employment or contract for services, any information or opinion to any other person where the relevant person knows, or reasonably ought to know, that as a result of that disclosure that other person will or would be likely to take either of the following steps:

(a)to enter into a transaction in financial instruments which, if it were a personal transaction of the relevant person, would be covered by paragraphs 2 or 3 or Article 37(2)(a) or (b) or Article 67(3);

(b)to advise or procure another person to enter into such a transaction.

5.The arrangements required under paragraph 1 shall be designed to ensure that:

(a)each relevant person covered by paragraphs 1, 2, 3 and 4 is aware of the restrictions on personal transactions, and of the measures established by the investment firm in connection with personal transactions and disclosure, in accordance with paragraphs 1, 2,3 and 4.

(b)the firm is informed promptly of any personal transaction entered into by a relevant person, either by notification of that transaction or by other procedures enabling the firm to identify such transactions;

(c)a record is kept of the personal transaction notified to the firm or identified by it, including any authorisation or prohibition in connection with such a transaction.

In the case of outsourcing arrangements, the investment firm shall ensure that the firm to which the activity is outsourced maintains a record of personal transactions entered into by any relevant person and provides that information to the investment firm promptly on request.

6.Paragraphs 1 to 5 shall not apply to the following personal transactions:

(a)personal transactions effected under a discretionary portfolio management service where there is no prior communication in connection with the transaction between the portfolio manager and the relevant person or other person for whose account the transaction is executed;

(b)personal transactions in undertakings for collective investments in transferable securities (UCITS) or AIFs that are subject to supervision under the law of [F120the United Kingdom] which requires an equivalent level of risk spreading in their assets, where the relevant person and any other person for whose account the transactions are effected are not involved in the management of that undertaking.

Textual Amendments

SECTION 2 U.K. Outsourcing

Article 30U.K.Scope of critical and important operational functions F121...

1.For the purposes of [F122rule 8.1.1 of the Senior Management Arrangements, Systems and Controls sourcebook and rule 2.1 of the Outsourcing Part of the PRA rulebook], an operational function shall be regarded as critical or important where a defect or failure in its performance would materially impair the continuing compliance of an investment firm with the conditions and obligations of its authorisation or its other obligations under [F123UK law on markets in financial instruments], or its financial performance, or the soundness or the continuity of its investment services and activities.

2.Without prejudice to the status of any other function, the following functions shall not be considered as critical or important for the purposes of paragraph 1:

(a)the provision to the firm of advisory services, and other services which do not form part of the investment business of the firm, including the provision of legal advice to the firm, the training of personnel of the firm, billing services and the security of the firm's premises and personnel;

(b)the purchase of standardised services, including market information services and the provision of price feeds.

Textual Amendments

Article 31U.K.Outsourcing critical or important operational functions F124...

1.Investment firms outsourcing critical or important operational functions shall remain fully responsible for discharging all of their obligations under [F125UK law on markets in financial instruments] and shall comply with the following conditions:

(a)the outsourcing does not result in the delegation by senior management of its responsibility;

(b)the relationship and obligations of the investment firm towards its clients under the terms of [F126UK law on markets in financial instruments] is not altered;

(c)the conditions with which the investment firm must comply in order [F127to have permission under Part 4A of FSMA to carry on a regulated activity which is any of the investment services and activities (within the meaning of regulation 2(1) of the Markets in Financial Instruments Regulations 2017)], and to remain so, are not undermined;

(d)none of the other conditions subject to which the firm's authorisation was granted is removed or modified.

2.Investment firms shall exercise due skill, care and diligence when entering into, managing or terminating any arrangement for the outsourcing to a service provider of critical or important operational functions and shall take the necessary steps to ensure that the following conditions are satisfied:

(a)the service provider has the ability, capacity, sufficient resources, appropriate organisational structure supporting the performance of the outsourced functions, and any authorisation required by law to perform the outsourced functions, reliably and professionally;

(b)the service provider carries out the outsourced services effectively and in compliance with applicable law and regulatory requirements, and to this end the firm has established methods and procedures for assessing the standard of performance of the service provider and for reviewing on an ongoing basis the services provided by the service provider;

(c)the service provider properly supervises the carrying out of the outsourced functions, and adequately manage the risks associated with the outsourcing;

(d)appropriate action is taken where it appears that the service provider may not be carrying out the functions effectively or in compliance with applicable laws and regulatory requirements;

(e)the investment firm effectively supervises the outsourced functions or services and manage the risks associated with the outsourcing and to this end the firm retains the necessary expertise and resources to supervise the outsourced functions effectively and manage those risks;

(f)the service provider has disclosed to the investment firm any development that may have a material impact on its ability to carry out the outsourced functions effectively and in compliance with applicable laws and regulatory requirements;

(g)the investment firm is able to terminate the arrangement for outsourcing where necessary, with immediate effect when this is in the interests of its clients, without detriment to the continuity and quality of its provision of services to clients;

(h)the service provider cooperates with the competent authorities of the investment firm in connection with the outsourced functions;

(i)the investment firm, its auditors and the relevant competent authorities have effective access to data related to the outsourced functions, as well as to the relevant business premises of the service provider, where necessary for the purpose of effective oversight in accordance with this article, and the competent authorities are able to exercise those rights of access;

(j)the service provider protects any confidential information relating to the investment firm and its clients;

(k)the investment firm and the service provider have established, implemented and maintained a contingency plan for disaster recovery and periodic testing of backup facilities, where that is necessary having regard to the function, service or activity that has been outsourced;

(l)the investment firm has ensured that the continuity and quality of the outsourced functions or services are maintained also in the event of termination of the outsourcing either by transferring the outsourced functions or services to another third party or by performing them itself.

3.The respective rights and obligations of the investment firms and of the service provider shall be clearly allocated and set out in a written agreement. In particular, the investment firm shall keep its instruction and termination rights, its rights of information, and its right to inspections and access to books and premises. The agreement shall ensure that outsourcing by the service provider only takes place with the consent, in writing, of the investment firm.

4.Where the investment firm and the service provider are members of the same group, the investment firm may, for the purposes of complying with this Article and Article 32, take into account the extent to which the firm controls the service provider or has the ability to influence its actions.

5.Investment firms shall make available on request to the competent authority all information necessary to enable the authority to supervise the compliance of the performance of the outsourced functions with the requirements of [F128UK law on markets in financial instruments].

Textual Amendments

Article 32U.K.Service providers located in third countries F129...

1.In addition to the requirements set out in Article 31, where an investment firm outsources functions related to the investment service of portfolio management provided to clients to a service provider located in a third country, that investment firm ensures that the following conditions are satisfied:

(a)the service provider is authorised or registered in its home country to provide that service and is effectively supervised by a competent authority in that third country;

(b)there is an appropriate cooperation agreement between the competent authority of the investment firm and the supervisory authority of the service provider.

2.The cooperation agreement referred to in point (b) of paragraph 1 shall ensure that the competent authorities of the investment firm are able, at least, to:

(a)obtain on request the information necessary to carry out their supervisory tasks pursuant to [F130UK law on markets in financial instruments] and Regulation (EU) No 600/2014;

(b)obtain access to the documents relevant for the performance of their supervisory duties maintained in the third country;

(c)receive information from the supervisory authority in the third country as soon as possible for the purpose of investigating apparent breaches of the requirements of [F131UK law on markets in financial instruments] and Regulation (EU) No 600/2014;

(d)cooperate with regard to enforcement, in accordance with the national and international law applicable to the supervisory authority of the third country and the competent authorities [F132in the United Kingdom] in cases of breach of the requirements of [F133UK law on markets in financial instruments].

3.[F134The FCA must publish on its] website a list of the supervisory authorities in third countries with which they have a cooperation agreement referred to in point (b) of paragraph 1.

F135...

Textual Amendments

SECTION 3 U.K. Conflicts of interest

Article 33U.K.Conflicts of interest potentially detrimental to a client F136...

For the purposes of identifying the types of conflict of interest that arise in the course of providing investment and ancillary services or a combination thereof and whose existence may damage the interests of a client, investment firms shall take into account, by way of minimum criteria, whether the investment firm or a relevant person, or a person directly or indirectly linked by control to the firm, is in any of the following situations, whether as a result of providing investment or ancillary services or investment activities or otherwise:

(a)

the firm or that person is likely to make a financial gain, or avoid a financial loss, at the expense of the client;

(b)

the firm or that person has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client's interest in that outcome;

(c)

the firm or that person has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;

(d)

the firm or that person carries on the same business as the client;

(e)

the firm or that person receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monetary or non-monetary benefits or services.

Textual Amendments

Article 34U.K.Conflicts of interest policy F137...

1.Investment firms shall establish, implement and maintain an effective conflicts of interest policy set out in writing and appropriate to the size and organisation of the firm and the nature, scale and complexity of its business.

Where the firm is a member of a group, the policy shall also take into account any circumstances, of which the firm is or should be aware, which may give rise to a conflict of interest arising as a result of the structure and business activities of other members of the group.

2.The conflicts of interest policy established in accordance with paragraph 1 shall include the following content:

(a)it must identify, with reference to the specific investment services and activities and ancillary services carried out by or on behalf of the investment firm, the circumstances which constitute or may give rise to a conflict of interest entailing a risk of damage to the interests of one or more clients;

(b)it must specify procedures to be followed and measures to be adopted in order to prevent or manage such conflicts.

3.The procedures and measures referred to in paragraph 2(b) shall be designed to ensure that relevant persons engaged in different business activities involving a conflict of interest of the kind specified in paragraph 2(a) carry on those activities at a level of independence appropriate to the size and activities of the investment firm and of the group to which it belongs, and to the risk of damage to the interests of clients.

For the purposes of paragraph 2(b), the procedures to be followed and measures to be adopted shall include at least those items in the following list that are necessary for the firm to ensure the requisite degree of independence:

(a)effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of a conflict of interest where the exchange of that information may harm the interests of one or more clients;

(b)the separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services to, clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the firm;

(c)the removal of any direct link between the remuneration of relevant persons principally engaged in one activity and the remuneration of, or revenues generated by, different relevant persons principally engaged in another activity, where a conflict of interest may arise in relation to those activities;

(d)measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out investment or ancillary services or activities;

(e)measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate investment or ancillary services or activities where such involvement may impair the proper management of conflicts of interest.

4.Investment firms shall ensure that disclosure to clients, pursuant to [F138rule 10.1.8(1) of the Senior Management Arrangements, Systems and Controls sourcebook], is a measure of last resort that shall be used only where the effective organisational and administrative arrangements established by the investment firm to prevent or manage its conflicts of interest in accordance with [F139rule 10.1.3 of the Senior Management Arrangements, Systems and Control sourcebook] are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented.

The disclosure shall clearly state that the organisational and administrative arrangements established by the investment firm to prevent or manage that conflict are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented. The disclosure shall include specific description of the conflicts of interest that arise in the provision of investment and/or ancillary services, taking into account the nature of the client to whom the disclosure is being made. The description shall explain the general nature and sources of conflicts of interest, as well as the risks to the client that arise as a result of the conflicts of interest and the steps undertaken to mitigate these risks, in sufficient detail to enable that client to take an informed decision with respect to the investment or ancillary service in the context of which the conflicts of interest arise.

5.Investment firms shall assess and periodically review, on an at least annual basis, the conflicts of interest policy established in accordance with paragraphs 1 to 4 and shall take all appropriate measures to address any deficiencies. Over-reliance on disclosure of conflicts of interest shall be considered a deficiency in the investment firm's conflicts of interest policy.

Textual Amendments

Article 35U.K.Record of services or activities giving rise to detrimental conflict of interest F140...

Investment firms shall keep and regularly update a record of the kinds of investment or ancillary service or investment activity carried out by or on behalf of the firm in which a conflict of interest entailing a risk of damage to the interests of one or more clients has arisen or, in the case of an ongoing service or activity, may arise.

Senior management shall receive on a frequent basis, and at least annually, written reports on situations referred to in this Article.

Textual Amendments

Article 36U.K.Investment research and marketing communications F141...

1.For the purposes of Article 37 investment research shall be research or other information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several financial instruments or the issuers of financial instruments, including any opinion as to the present or future value or price of such instruments, intended for distribution channels or for the public, and in relation to which the following conditions are met:

(a)the research or information is labelled or described as investment research or in similar terms, or is otherwise presented as an objective or independent explanation of the matters contained in the recommendation;

(b)if the recommendation in question were made by an investment firm to a client, it would not constitute the provision of investment advice for the purposes of [F142UK law on markets in financial instruments].

2.A recommendation of the type covered by point (35) of Article 3(1) of Regulation (EU) No 596/2014 that does not meet the conditions set out in paragraph 1 shall be treated as a marketing communication for the purposes of [F143UK law on markets in financial instruments] and investment firms that produce or disseminate that recommendation shall ensure that it is clearly identified as such.

Additionally, firms shall ensure that any such recommendation contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Textual Amendments

Article 37U.K.Additional organisational requirements in relation to investment research or marketing communications F144...

1.Investment firms which produce, or arrange for the production of, investment research that is intended or likely to be subsequently disseminated to clients of the firm or to the public, under their own responsibility or that of a member of their group, shall ensure the implementation of all the measures set out in Article 34(3) in relation to the financial analysts involved in the production of the investment research and other relevant persons whose responsibilities or business interests may conflict with the interests of the persons to whom the investment research is disseminated.

The obligations in the first subparagraph shall also apply in relation to recommendations referred to in Article 36(2).

2.Investment firms referred to in the first subparagraph of paragraph 1 shall have in place arrangements designed to ensure that the following conditions are satisfied:

(a)financial analysts and other relevant persons do not undertake personal transactions or trade, other than as market makers acting in good faith and in the ordinary course of market making or in the execution of an unsolicited client order, on behalf of any other person, including the investment firm, in financial instruments to which investment research relates, or in any related financial instruments, with knowledge of the likely timing or content of that investment research which is not publicly available or available to clients and cannot readily be inferred from information that is so available, until the recipients of the investment research have had a reasonable opportunity to act on it;

(b)in circumstances not covered by point (a), financial analysts and any other relevant persons involved in the production of investment research do not undertake personal transactions in financial instruments to which the investment research relates, or in any related financial instruments, contrary to current recommendations, except in exceptional circumstances and with the prior approval of a member of the firm's legal or compliance function;

(c)a physical separation exists between the financial analysts involved in the production of investment research and other relevant persons whose responsibilities or business interests may conflict with the interests of the persons to whom the investment research is disseminated or, when considered not appropriate to the size and organisation of the firm as well as the nature, scale and complexity of its business, the establishment and implementation of appropriate alternative information barriers;

(d)the investment firms themselves, financial analysts, and other relevant persons involved in the production of the investment research do not accept inducements from those with a material interest in the subject-matter of the investment research;

(e)the investment firms themselves, financial analysts, and other relevant persons involved in the production of the investment research do not promise issuers favourable research coverage;

(f)before the dissemination of investment research issuers, relevant persons other than financial analysts, and any other persons are not permitted to review a draft of the investment research for the purpose of verifying the accuracy of factual statements made in that research, or for any purpose other than verifying compliance with the firm's legal obligations, where the draft includes a recommendation or a target price.

For the purposes of this paragraph, ‘related financial instrument’ shall be any financial instrument the price of which is closely affected by price movements in another financial instrument which is the subject of investment research, and includes a derivative on that other financial instrument.

3.Investment firms which disseminate investment research produced by another person to the public or to clients shall be exempt from complying with paragraph 1 if the following criteria are met:

(a)the person that produces the investment research is not a member of the group to which the investment firm belongs;

(b)the investment firm does not substantially alter the recommendations within the investment research;

(c)the investment firm does not present the investment research as having been produced by it;

(d)the investment firm verifies that the producer of the research is subject to requirements equivalent to the requirements under this Regulation in relation to the production of that research, or has established a policy setting such requirements.

Textual Amendments

Article 38U.K.Additional general requirements in relation to underwriting or placing F145...

1.Investment firms which provide advice on corporate finance strategy, as set out in [F146Paragraph 3 of Part 3A of Schedule 2 to the Regulated Activities Order], and provide the service of underwriting or placing of financial instruments, shall, before accepting a mandate to manage the offering, have arrangements in place to inform the issuer client of the following:

(a)the various financing alternatives available with the firm, and an indication of the amount of transaction fees associated with each alternative;

(b)the timing and the process with regard to the corporate finance advice on pricing of the offer;

(c)the timing and the process with regard to the corporate finance advice on placing of the offering;

(d)details of the targeted investors, to whom the firm intends to offer the financial instruments;

(e)the job titles and departments of the relevant individuals involved in the provision of corporate finance advice on the price and allotment of financial instruments; and

(f)firm's arrangements to prevent or manage conflicts of interest that may arise where the firm places the relevant financial instruments with its investment clients or with its own proprietary book.

2.Investment firms shall have in place a centralised process to identify all underwriting and placing operations of the firm and record such information, including the date on which the firm was informed of potential underwriting and placing operations. Firms shall identify all potential conflicts of interest arising from other activities of the investment firm, or group, and implement appropriate management procedures. In cases where an investment firm cannot manage a conflict of interest by way of implementing appropriate procedures, the investment firm shall not engage in the operation.

3.Investment firms providing execution and research services as well as carrying out underwriting and placing activities shall ensure adequate controls are in place to manage any potential conflicts of interest between these activities and between their different clients receiving those services.

Textual Amendments

Article 39U.K.Additional requirements in relation to pricing of offerings in relation to issuance of financial instruments F147...

1.Investment firms shall have in place systems, controls and procedures to identify and prevent or manage conflicts of interest that arise in relation to possible under-pricing or over-pricing of an issue or involvement of relevant parties in the process. In particular, investment firms shall as a minimum requirement establish, implement and maintain internal arrangements to ensure both of the following:

(a)that the pricing of the offer does not promote the interests of other clients or firm's own interests, in a way that may conflict with the issuer client's interests; and

(b)the prevention or management of a situation where persons responsible for providing services to the firm's investment clients are directly involved in decisions about corporate finance advice on pricing to the issuer client.

2.Investment firms shall provide clients with information about how the recommendation as to the price of the offering and the timings involved is determined. In particular, the firm shall inform and engage with the issuer client about any hedging or stabilisation strategies it intends to undertake with respect to the offering, including how these strategies may impact the issuer clients' interests. During the offering process, firms shall also take all reasonable steps to keep the issuer client informed about developments with respect to the pricing of the issue.

Textual Amendments

Article 40U.K.Additional requirements in relation to placing F148...

1.Investment firms placing financial instruments shall establish, implement and maintain effective arrangements to prevent recommendations on placing from being inappropriately influenced by any existing or future relationships.

2.Investment firms shall establish, implement and maintain effective internal arrangements to prevent or manage conflicts of interests that arise where persons responsible for providing services to the firm's investment clients are directly involved in decisions about recommendations to the issuer client on allocation.

3.Investment firms shall not accept any third-party payments or benefits unless such payments or benefits comply with [F149rules made by the FCA under FSMA which were relied on by the United Kingdom immediately before IP completion day to implement] the inducements requirements laid down in Article 24 of Directive 2014/65/EU. In particular, the following practices shall be considered not compliant with those requirements and shall therefore be considered not acceptable:

(a)an allocation made to incentivise the payment of disproportionately high fees for unrelated services provided by the investment firm (‘laddering’), such as disproportionately high fees or commissions paid by an investment client, or disproportionately high volumes of business at normal levels of commission provided by the investment client as a compensation for receiving an allocation of the issue;

(b)an allocation made to a senior executive or a corporate officer of an existing or potential issuer client, in consideration for the future or past award of corporate finance business (‘spinning’);

(c)an allocation that is expressly or implicitly conditional on the receipt of future orders or the purchase of any other service from the investment firm by an investment client, or any entity of which the investor is a corporate officer.

4.Investment firms shall establish, implement and maintain an allocation policy that sets out the process for developing allocation recommendations. The allocation policy shall be provided to the issuer client before agreeing to undertake any placing services. The policy shall set out relevant information that is available at that stage, about the proposed allocation methodology for the issue.

5.Investment firms shall involve the issuer client in discussions about the placing process in order for the firm to be able to understand and take into account the client's interests and objectives. The investment firm shall obtain the issuer client's agreement to its proposed allocation per type of client for the transaction in accordance with the allocation policy.

Textual Amendments

Article 41U.K.Additional requirements in relation to advice, distribution and self-placement F150...

1.Investment firms shall have in place systems, controls and procedures to identify and manage the conflicts of interest that arise when providing investment service to an investment client to participate in a new issue, where the investment firm receives commissions, fees or any monetary or non-monetary benefits in relation to arranging the issuance. Any commissions, fees or monetary or non-monetary benefits shall comply with the requirements in [F151rules 2.3A.5 to 2.3A.7, 2.3A.15, 2.3A.16, 2.3A.19 and 6.2B.11 of the Conduct of Business sourcebook] and be documented in the investment firm's conflicts of interest policies and reflected in the firm's inducements arrangements.

2.Investment firms engaging in the placement of financial instruments issued by themselves or by entities within the same group, to their own clients, including their existing depositor clients in the case of credit institutions, or investment funds managed by entities of their group, shall establish, implement and maintain clear and effective arrangements for the identification, prevention or management of the potential conflicts of interest that arise in relation to this type of activity. Such arrangements shall include consideration of refraining from engaging in the activity, where conflicts of interest cannot be appropriately managed so as to prevent any adverse effects on clients.

3.When disclosure of conflicts of interest is required, investment firms shall comply with the requirements in Article 34(4), including an explanation of the nature and source of the conflicts of interest inherent to this type of activity, providing details about the specific risks related to such practices in order to enable clients to make an informed investment decision.

[F1524.Investment firms which offer financial instruments that are issued by themselves or other group entities to their clients and that are included in the calculation of prudential requirements specified in Regulation (EU) No 575/2013, CRR rules, Directive 2013/36/EU UK law, Part 9C rules, or the law of the United Kingdom or any part of the United Kingdom (“the UK law”) which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2014/49/EU of the European Parliament and of the Council, must provide those clients with additional information explaining the differences between the financial instrument and bank deposits in terms of yield, risk, liquidity and any protection provided in accordance with the UK law which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2014/49/EU of the European Parliament and of the Council.]

Textual Amendments

Article 42U.K.Additional requirements in relation to lending or provision of credit in the context of underwriting or placement F153...

1.Where any previous lending or credit to the issuer client by an investment firm, or an entity within the same group, may be repaid with the proceeds of an issue, the investment firm shall have arrangements in place to identify and prevent or manage any conflicts of interest that may arise as a result.

2.Where the arrangements taken to manage conflicts of interest prove insufficient to ensure that the risk of damage to the issuer client would be prevented, investment firms shall disclose to the issuer client the specific conflicts of interest that have arisen in relation to their, or group entities', activities in a capacity of credit provider, and their activities related to the securities offering.

3.Investment firms' conflict of interest policy shall require the sharing of information about the issuer's financial situation with group entities acting as credit providers, provided this would not breach information barriers set up by the firm to protect the interests of a client.

Textual Amendments

Article 43U.K.Record keeping in relation to underwriting or placing F154...

Investment firms shall keep records of the content and timing of instructions received from clients. A record of the allocation decisions taken for each operation shall be kept to provide for a complete audit trail between the movements registered in clients' accounts and the instructions received by the investment firm. In particular, the final allocation made to each investment client shall be clearly justified and recorded. The complete audit trail of the material steps in the underwriting and placing process shall be made available to competent authorities upon request.

Textual Amendments

CHAPTER IIIU.K. OPERATING CONDITIONS FOR INVESTMENT FIRMS

SECTION 1 U.K. Information to clients and potential clients

Article 44U.K.Fair, clear and not misleading information requirements F155...

1.Investment firms shall ensure that all information they address to, or disseminate in such a way that it is likely to be received by, retail or professional clients or potential retail or professional clients, including marketing communications, satisfies the conditions laid down in paragraphs 2 to 8.

2.Investment firm shall ensure that the information referred to in paragraph 1 complies with the following conditions:

(a)the information includes the name of the investment firm,

(b)the information is accurate and always gives a fair and prominent indication of any relevant risks when referencing any potential benefits of an investment service or financial instrument,

(c)the information uses a font size in the indication of relevant risks that is at least equal to the predominant font size used throughout the information provided, as well as a layout ensuring such indication is prominent,

(d)the information is sufficient for, and presented in a way that is likely to be understood by, the average member of the group to whom it is directed, or by whom it is likely to be received,

(e)the information does not disguise, diminish or obscure important items, statements or warnings,

(f)the information is consistently presented in the same language throughout all forms of information and marketing materials that are provided to each client, unless the client has accepted to receive information in more than one language,

(g)the information is up-to-date and relevant to the means of communication used.

3.Where the information compares investment or ancillary services, financial instruments, or persons providing investment or ancillary services, investment firms shall ensure that the following conditions are satisfied:

(a)the comparison is meaningful and presented in a fair and balanced way;

(b)the sources of the information used for the comparison are specified;

(c)the key facts and assumptions used to make the comparison are included.

4.Where the information contains an indication of past performance of a financial instrument, a financial index or an investment service, investment firms shall ensure that the following conditions are satisfied:

(a)that indication is not the most prominent feature of the communication;

(b)the information must include appropriate performance information which covers the preceding 5 years, or the whole period for which the financial instrument has been offered, the financial index has been established, or the investment service has been provided where less than five years, or such longer period as the firm may decide, and in every case that performance information is based on complete 12-month periods;

(c)the reference period and the source of information is clearly stated;

(d)the information contains a prominent warning that the figures refer to the past and that past performance is not a reliable indicator of future results;

(e)where the indication relies on figures denominated in a currency other than [F156pounds sterling], the currency is clearly stated, together with a warning that the return may increase or decrease as a result of currency fluctuations;

(f)where the indication is based on gross performance, the effect of commissions, fees or other charges are disclosed.

5.Where the information includes or refers to simulated past performance, investment firms shall ensure that the information relates to a financial instrument or a financial index, and the following conditions are satisfied:

(a)the simulated past performance is based on the actual past performance of one or more financial instruments or financial indices which are the same as, or substantially the same as, or underlie, the financial instrument concerned;

(b)in respect of the actual past performance referred to in point (a), the conditions set out in points (a) to (c), (e) and (f) of paragraph 4 are satisfied;

(c)the information contains a prominent warning that the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

6.Where the information contains information on future performance, investment firms shall ensure that the following conditions are satisfied:

(a)the information is not based on or refer to simulated past performance;

(b)the information is based on reasonable assumptions supported by objective data;

(c)where the information is based on gross performance, the effect of commissions, fees or other charges is disclosed;

(d)the information is based on performance scenarios in different market conditions (both negative and positive scenarios), and reflects the nature and risks of the specific types of instruments included in the analysis;

(e)the information contains a prominent warning that such forecasts are not a reliable indicator of future performance.

7.Where the information refers to a particular tax treatment, it shall prominently state that the tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

8.The information shall not use the name of any competent authority in such a way that would indicate or suggest endorsement or approval by that authority of the products or services of the investment firm.

Textual Amendments

Article 45U.K.Information concerning client categorisation F157...

1.Investment firms shall notify new clients, and existing clients that the investment firm has newly categorised as required by [F158UK law on markets in financial instruments], of their categorisation as a retail client, a professional client or an eligible counterparty in accordance with that Directive.

2.Investment firms shall inform clients in a durable medium about any right that client has to request a different categorisation and about any limitations to the level of client protection that a different categorisation would entail.

3.Investment firms may, either on their own initiative or at the request of the client concerned treat a client in the following manner:

(a)as a professional or retail client where that client might otherwise be classified as an eligible counterparty pursuant to [F159rule 3.6.2 of the Conduct of Business sourcebook];

(b)a retail client where that client that is considered a professional client pursuant to [F160Part 2 of Schedule 1 to Regulation (EU) No 600/2014].

Textual Amendments

Article 46U.K.General requirements for information to clients F161...

1.Investment firms shall, in good time before a client or potential client is bound by any agreement for the provision of investment services or ancillary services or before the provision of those services, whichever is the earlier to provide that client or potential client with the following information:

(a)the terms of any such agreement;

(b)the information required by Article 47 relating to that agreement or to those investment or ancillary services.

2.[F162Subject to paragraph 2A, investment firms must], in good time before the provision of investment services or ancillary services to clients or potential clients, to provide the information required under Articles 47 to 50.

[F1632A.Where the agreement to buy or sell a financial instrument is concluded using a means of distance communication, which prevents the delivery of the information on costs and charges before that conclusion—

(a)the investment firm must give the client or potential client the option of receiving the information on costs and charges over the telephone before the conclusion of the transaction; and

(b)subject to meeting the conditions referred to in paragraph 2B(a) and (b), the investment firm may provide the information on costs and charges to clients in—

(i)electronic format; or

(ii)where requested by a retail client or potential retail client, on paper,

without undue delay after the conclusion of the transaction.

2B.The conditions referred to in paragraph 2A(b) are—

(a)the client or potential client has requested and consented to receiving the information without undue delay after the conclusion of the transaction; and

(b)the investment firm has given the client or potential client the option of delaying the conclusion of the transaction until the client has received the information.]

3.The information referred to in [F164paragraphs 1 to 2B] shall be provided in a durable medium or by means of a website (where it does not constitute a durable medium) provided that the conditions specified in Article 3(2) are satisfied.

4.Investment firms shall notify a client in good time about any material change to the information provided under Articles 47 to 50 which is relevant to a service that the firm is providing to that client. That notification shall be given in a durable medium if the information to which it relates is given in a durable medium.

5.Investment firms shall ensure that information contained in a marketing communication is consistent with any information the firm provides to clients in the course of carrying on investment and ancillary services.

6.Marketing communications containing an offer or invitation of the following nature and specifying the manner of response or including a form by which any response may be made, shall include such of the information referred to in Articles 47 to 50 as is relevant to that offer or invitation:

(a)an offer to enter into an agreement in relation to a financial instrument or investment service or ancillary service with any person who responds to the communication;

(b)an invitation to any person who responds to the communication to make an offer to enter into an agreement in relation to a financial instrument or investment service or ancillary service.

However, the first subparagraph shall not apply if, in order to respond to an offer or invitation contained in the marketing communication, the potential client must refer to another document or documents, which, alone or in combination, contain that information.

Textual Amendments

Article 47U.K.Information about the investment firm and its services for clients and potential clients F165...

1.Investment firms shall provide clients or potential clients with the following general information, where relevant:

(a)the name and address of the investment firm, and the contact details necessary to enable clients to communicate effectively with the firm;

(b)the languages in which the client may communicate with the investment firm, and receive documents and other information from the firm;

(c)the methods of communication to be used between the investment firm and the client including, where relevant, those for the sending and reception of orders;

(d)a statement of the fact that the investment firm is authorised and the name and contact address of the competent authority that has authorised it;

(e)where the investment firm is acting through a tied agent, a statement of this fact F166... ;

(f)the nature, frequency and timing of the reports on the performance of the service to be provided by the investment firm to the client in accordance with [F167rules 9A.3.2 and 16A.2.1 of the Conduct of Business sourcebook];

(g)where the investment firm holds client financial instruments or client funds, a summary description of the steps which it takes to ensure their protection, including summary details of any relevant investor compensation or deposit guarantee scheme which applies to the firm by virtue of its activities in [F168the United Kingdom];

(h)a description, which may be provided in summary form, of the conflicts of interest policy maintained by the firm in accordance with Article 34;

(i)at the request of the client, further details of that conflicts of interest policy in a durable medium or by means of a website (where that does not constitute a durable medium) provided that the conditions set out Article 3(2) are satisfied.

The information listed in points (a) to (i) shall be provided in good time before the provision of investment services or ancillary services to clients or potential clients.

2.When providing the service of portfolio management, investment firms shall establish an appropriate method of evaluation and comparison such as a meaningful benchmark, based on the investment objectives of the client and the types of financial instruments included in the client portfolio, so as to enable the client for whom the service is provided to assess the firm's performance.

3.Where investment firms propose to provide portfolio management services to a client or potential client, they shall provide the client, in addition to the information required under paragraph 1, with such of the following information as is applicable:

(a)information on the method and frequency of valuation of the financial instruments in the client portfolio;

(b)details of any delegation of the discretionary management of all or part of the financial instruments or funds in the client portfolio;

(c)a specification of any benchmark against which the performance of the client portfolio will be compared;

(d)the types of financial instrument that may be included in the client portfolio and types of transaction that may be carried out in such instruments, including any limits;

(e)the management objectives, the level of risk to be reflected in the manager's exercise of discretion, and any specific constraints on that discretion.

The information listed in points (a) to (e) shall be provided in good time before the provision of investment services or ancillary services to clients or potential clients.

Textual Amendments

Article 48U.K.Information about financial instruments F169...

1.Investment firms shall provide clients or potential clients in good time before the provision of investment services or ancillary services to clients or potential clients with a general description of the nature and risks of financial instruments, taking into account, in particular, the client's categorisation as either a retail client, professional client or eligible counterparty. That description shall explain the nature of the specific type of instrument concerned, the functioning and performance of the financial instrument in different market conditions, including both positive and negative conditions, as well as the risks particular to that specific type of instrument in sufficient detail to enable the client to take investment decisions on an informed basis.

2.The description of risks referred to in paragraph 1 shall include, where relevant to the specific type of instrument concerned and the status and level of knowledge of the client, the following elements:

(a)the risks associated with that type of financial instrument including an explanation of leverage and its effects and the risk of losing the entire investment including the risks associated with insolvency of the issuer or related events, such as bail in;

(b)the volatility of the price of such instruments and any limitations on the available market for such instruments;

(c)information on impediments or restrictions for disinvestment, for example as may be the case for illiquid financial instruments or financial instruments with a fixed investment term, including an illustration of the possible exit methods and consequences of any exit, possible constraints and the estimated time frame for the sale of the financial instrument before recovering the initial costs of the transaction in that type of financial instruments;

(d)the fact that an investor might assume, as a result of transactions in such instruments, financial commitments and other additional obligations, including contingent liabilities, additional to the cost of acquiring the instruments;

(e)any margin requirements or similar obligations, applicable to instruments of that type.

3.Where an investment firm provides a retail client or potential retail client with information about a financial instrument that is the subject of a current offer to the public and a prospectus has been published in connection with that offer in accordance with [F170the law of the United Kingdom which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2003/71/EC, as that law is amended from time to time], that firm shall in good time before the provision of investment services or ancillary services to clients or potential clients inform the client or potential client where that prospectus is made available to the public.

4.Where a financial instrument is composed of two or more different financial instruments or services, the investment firm shall provide an adequate description of the legal nature of the financial instrument, the components of that instrument and the way in which the interaction between the components affects the risks of the investment.

5.In the case of financial instruments that incorporate a guarantee or capital protection, the investment firm shall provide a client or a potential client with information about the scope and nature of such guarantee or capital protection. When the guarantee is provided by a third party, information about the guarantee shall include sufficient detail about the guarantor and the guarantee to enable the client or potential client to make a fair assessment of the guarantee.

Textual Amendments

Article 49U.K.Information concerning safeguarding of client financial instruments or client funds F171...

1.Investment firms holding financial instruments or funds belonging to clients shall provide those clients or potential clients with the information specified in paragraphs 2 to 7 where relevant.

2.The investment firm shall inform the client or potential client where the financial instruments or funds of that client may be held by a third party on behalf of the investment firm and of the responsibility of the investment firm under the applicable national law for any acts or omissions of the third party and the consequences for the client of the insolvency of the third party.

3.Where financial instruments of the client or potential client may, if permitted by national law, be held in an omnibus account by a third party, the investment firm shall inform the client of this fact and shall provide a prominent warning of the resulting risks.

4.The investment firm shall inform the client or potential client where it is not possible under national law for client financial instruments held with a third party to be separately identifiable from the proprietary financial instruments of that third party or of the investment firm and shall provide a prominent warning of the resulting risks.

5.The investment firm shall inform the client or potential client where accounts that contain financial instruments or funds belonging to that client or potential client are or will be subject to the law of a jurisdiction other than that of [F172the United Kingdom] and shall indicate that the rights of the client or potential client relating to those financial instruments or funds may differ accordingly.

6.An investment firm shall inform the client about the existence and the terms of any security interest or lien which the firm has or may have over the client's financial instruments or funds, or any right of set-off it holds in relation to those instruments or funds. Where applicable, it shall also inform the client of the fact that a depository may have a security interest or lien over, or right of set-off in relation to those instruments or funds.

7.An investment firm, before entering into securities financing transactions in relation to financial instruments held by it on behalf of a client, or before otherwise using such financial instruments for its own account or the account of another client shall in good time before the use of those instruments provide the client, in a durable medium, with clear, full and accurate information on the obligations and responsibilities of the investment firm with respect to the use of those financial instruments, including the terms for their restitution, and on the risks involved.

Textual Amendments

Article 50U.K.Information on costs and associated charges F173...

1.For the purposes of providing information to clients on all costs and charges pursuant to [F174rule 6.1ZA.11 of the Conduct of Business sourcebook (“the relevant rule”)], investment firms shall comply with the detailed requirements in paragraphs 2 to 10.

F175...

F175...

[F1761A.(1) Subject to sub-paragraph (2), the requirements laid down in the relevant rule do not apply to services provided to professional clients.

(2) The requirements laid down in the relevant rule do apply to services provided to professional clients for investment advice and portfolio management.]

2.For ex-ante and ex-post disclosure of information on costs and charges to clients, investment firms shall aggregate the following:

(a)all costs and associated charges charged by the investment firm or other parties where the client has been directed to such other parties, for the investment services(s) and/or ancillary services provided to the client; and

(b)all costs and associated charges associated with the manufacturing and managing of the financial instruments.

Costs referred to in points (a) and (b) are listed in Annex II to this Regulation. For the purposes of point (a), third party payments received by investment firms in connection with the investment service provided to a client shall be itemised separately and the aggregated costs and charges shall be totalled and expressed both as a cash amount and as a percentage.

3.Where any part of the total costs and charges is to be paid in or represents an amount of foreign currency, investment firms shall provide an indication of the currency involved and the applicable currency conversion rates and costs. Investments firms shall also inform about the arrangements for payment or other performance.

4.In relation to the disclosure of product costs and charges that are not included in the UCITS KIID, the investment firms shall calculate and disclose these costs, for example, by liaising with UCITS management companies to obtain the relevant information.

5.The obligation to provide in good time a full ex-ante disclosure of information about the aggregated costs and charges related to the financial instrument and to the investment or ancillary service provided shall apply to investment firms in the following situations:

(a)where the investment firm recommends or markets financial instruments to clients; or

(b)where the investment firm providing any investment services is required to provide clients with a UCITS KIID or PRIIPs KID in relation to the relevant financial instruments, F177....

6.Investment firms that do not recommend or market a financial instrument to the client or are not obliged to provide the client with a KID/KIID F178... shall inform their clients about all costs and charges relating to the investment and/or ancillary service provided.

7.Where more than one investment firm provides investment or ancillary services to the client, each investment firm shall provide information about the costs of the investment or ancillary services it provides. An investment firm that recommends or markets to its clients the services provided by another firm, shall aggregate the cost and charges of its services together with the cost and charges of the services provided by the other firm. An investment firm shall take into account the costs and charges associated to the provision of other investment or ancillary services by other firms where it has directed the client to these other firms.

8.Where calculating costs and charges on an ex-ante basis, investment firms shall use actually incurred costs as a proxy for the expected costs and charges. Where actual costs are not available, the investment firm shall make reasonable estimations of these costs. Investment firms shall review ex-ante assumptions based on the ex-post experience and shall make adjustment to these assumptions, where necessary.

9.Investment firms shall provide annual ex-post information about all costs and charges related to both the financial instrument(s) and investment and ancillary service(s) where they have recommended or marketed the financial instrument(s) or where they have provided the client with the KID/KIID in relation to the financial instrument(s) and they have or have had an ongoing relationship with the client during the year. Such information shall be based on costs incurred and shall be provided on a personalised basis.

Investment firms may choose to provide such aggregated information on costs and charges of the investment services and the financial instruments together with any existing periodic reporting to clients.

10.Investment firms shall provide their clients with an illustration showing the cumulative effect of costs on return when providing investment services. Such an illustration shall be provided both on an ex-ante and ex-post basis. Investment firms shall ensure that the illustration meets the following requirements:

(a)the illustration shows the effect of the overall costs and charges on the return of the investment;

(b)the illustration shows any anticipated spikes or fluctuations in the costs; and

(c)the illustration is accompanied by a description of the illustration.

Textual Amendments

Article 51U.K.Information provided [F179in relation to units in collective investment undertakings or PRIIPs] F180...

Investment firms distributing units in collective investment undertakings or PRIIPs shall additionally inform their clients about any other costs and associated charges related to the product which may have not been included in the UCITS KID or PRIIPs KID and about the costs and charges relating to their provision of investment services in relation to that financial instrument.

Textual Amendments

SECTION 2 U.K. Investment advice

Article 52U.K.Information about investment advice F181...

1.Investment firms shall explain in a clear and concise way whether and why investment advice qualifies as independent or non-independent and the type and nature of the restrictions that apply, including, when providing investment advice on an independent basis, the prohibition to receive and retain inducements.

Where advice is offered or provided to the same client on both an independent and non-independent basis, investment firms shall explain the scope of both services to allow investors to understand the differences between them and not present itself f as an independent investment adviser for the overall activity. Firms shall not give undue prominence to their independent investment advice services over non-independent investment services in their communications with clients.

2.Investment firms providing investment advice, on an independent or non-independent basis, shall explain to the client the range of financial instruments that may be recommended, including the firm's relationship with the issuers or providers of the instruments.

3.Investment firms shall provide a description of the types of financial instruments considered, the range of financial instruments and providers analysed per each type of instrument according to the scope of the service, and, when providing independent advice, how the service provided satisfies the conditions for the provision of investment advice on an independent basis and the factors taken into consideration in the selection process used by the investment firm to recommend financial instruments, such as risks, costs and complexity of the financial instruments.

4.When the range of financial instruments assessed by the investment firm providing investment advice on an independent basis includes the investment firm's own financial instruments or those issued or provided by entities having close links or any other close legal or economic relationship with the investment firm as well as other issuers or providers which are not linked or related, the investment firm shall distinguish, for each type of financial instrument, the range of the financial instruments issued or provided by entities not having any links with the investment firm.

5.Investments firms providing a periodic assessment of the suitability of the recommendations provided pursuant to Article 54(12) shall disclose all of the following:

(a)the frequency and extent of the periodic suitability assessment and where relevant, the conditions that trigger that assessment;

(b)the extent to which the information previously collected will be subject to reassessment; and

(c)the way in which an updated recommendation will be communicated to the client.

Textual Amendments

Article 53U.K.Investment advice on an independent basis F182...

1.Investment firms providing investment advice on an independent basis shall define and implement a selection process to assess and compare a sufficient range of financial instruments available on the market in accordance with [F183rule 6.2B.11 of the Conduct of Business sourcebook]. The selection process shall include the following elements:

(a)the number and variety of financial instruments considered is proportionate to the scope of investment advice services offered by the independent investment adviser;

(b)the number and variety of financial instruments considered is adequately representative of financial instruments available on the market;

(c)the quantity of financial instruments issued by the investment firm itself or by entities closely linked to the investment firm itself is proportionate to the total amount of financial instruments considered; and

(d)the criteria for selecting the various financial instruments shall include all relevant aspects such as risks, costs and complexity as well as the characteristics of the investment firm's clients, and shall ensure that the selection of the instruments that may be recommended is not biased.

Where such a comparison is not possible due to the business model or the specific scope of the service provided, the investment firm providing investment advice shall not present itself as independent.

2.An investment firm that provides investment advice on an independent basis and that focuses on certain categories or a specified range of financial instruments shall comply with the following requirements:

(a)the firm shall market itself in a way that is intended only to attract clients with a preference for those categories or range of financial instruments;

(b)the firm shall require clients to indicate that they are only interested in investing in the specified category or range of financial instruments; and

(c)prior to the provision of the service, the firm shall ensure that its service is appropriate for each new client on the basis that its business model matches the client's needs and objectives, and the range of financial instruments that are suitable for the client. Where this is not the case the firm shall not provide such a service to the client.

3.An investment firm offering investment advice on both an independent basis and on a non-independent basis shall comply with the following obligations:

(a)in good time before the provision of its services, the investment firm has informed its clients, in a durable medium, whether the advice will be independent or non-independent in accordance with [F184rule 6.2B.33 of the Conduct of Business sourcebook] and the relevant implementing measures;

(b)the investment firm has presented itself as independent for the services for which it provides investment advice on an independent basis;

(c)the investment firms has adequate organisational requirements and controls in place to ensure that both types of advice services and advisers are clearly separated from each other and that clients are not likely to be confused about the type of advice that they are receiving and are given the type of advice that is appropriate for them. The investment firm shall not allow a natural person to provide both independent and non-independent advice.

Textual Amendments

SECTION 3 U.K. Assessment of suitability and appropriateness

Article 54U.K.Assessment of suitability and suitability reports F185...

1.Investment firms shall not create any ambiguity or confusion about their responsibilities in the process when assessing the suitability of investment services or financial instruments in accordance with [F186rule 9A.2.1 of the Conduct of Business sourcebook]. When undertaking the suitability assessment, the firm shall inform clients or potential clients, clearly and simply, that the reason for assessing suitability is to enable the firm to act in the client's best interest.

Where investment advice or portfolio management services are provided in whole or in part through an automated or semi-automated system, the responsibility to undertake the suitability assessment shall lie with the investment firm providing the service and shall not be reduced by the use of an electronic system in making the personal recommendation or decision to trade.

2.Investment firms shall determine the extent of the information to be collected from clients in light of all the features of the investment advice or portfolio management services to be provided to those clients. Investment firms shall obtain from clients or potential clients such information as is necessary for the firm to understand the essential facts about the client and to have a reasonable basis for determining, giving due consideration to the nature and extent of the service provided, that the specific transaction to be recommended, or entered into in the course of providing a portfolio management service, satisfies the following criteria:

(a)it meets the investment objectives of the client in question, including client's risk tolerance;

(b)it is such that the client is able financially to bear any related investment risks consistent with his investment objectives;

(c)it is such that the client has the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of his portfolio.

3.Where an investment firm provides an investment service to a professional client it shall be entitled to assume that in relation to the products, transactions and services for which it is so classified, the client has the necessary level of experience and knowledge for the purposes of point (c) of paragraph 2.

Where that investment service consists in the provision of investment advice to a professional client covered by [F187Part 2 of Schedule 1 to Regulation (EU) No 600/2014], the investment firm shall be entitled to assume for the purposes of point (b) of paragraph 2 that the client is able financially to bear any related investment risks consistent with the investment objectives of that client.

4.The information regarding the financial situation of the client or potential client shall include, where relevant, information on the source and extent of his regular income, his assets, including liquid assets, investments and real property, and his regular financial commitments.

5.The information regarding the investment objectives of the client or potential client shall include, where relevant, information on the length of time for which the client wishes to hold the investment, his preferences regarding risk taking, his risk profile, and the purposes of the investment.

6.Where a client is a legal person or a group of two or more natural persons or where one or more natural persons are represented by another natural person, the investment firm shall establish and implement policy as to who should be subject to the suitability assessment and how this assessment will be done in practice, including from whom information about knowledge and experience, financial situation and investment objectives should be collected. The investment firm shall record this policy.

Where a natural person is represented by another natural person or where a legal person having requested treatment as professional client in accordance with [F188Part 3 of Schedule 1 to Regulation (EU) No 600/2014] is to be considered for the suitability assessment, the financial situation and investment objectives shall be those of the legal person or, in relation to the natural person, the underlying client rather than of the representative. The knowledge and experience shall be that of the representative of the natural person or the person authorised to carry out transactions on behalf of the underlying client.

7.Investment firms shall take reasonable steps to ensure that the information collected about their clients or potential clients is reliable. This shall include, but shall not be limited to, the following:

(a)ensuring clients are aware of the importance of providing accurate and up-to-date information;

(b)ensuring all tools, such as risk assessment profiling tools or tools to assess a client's knowledge and experience, employed in the suitability assessment process are fit-for-purpose and are appropriately designed for use with their clients, with any limitations identified and actively mitigated through the suitability assessment process;

(c)ensuring questions used in the process are likely to be understood by clients, capture an accurate reflection of the client's objectives and needs, and the information necessary to undertake the suitability assessment; and

(d)taking steps, as appropriate, to ensure the consistency of client information, such as by considering whether there are obvious inaccuracies in the information provided by clients.

Investment firms having an on-going relationship with the client, such as by providing an ongoing advice or portfolio management service, shall have, and be able to demonstrate, appropriate policies and procedures to maintain adequate and up-to-date information about clients to the extent necessary to fulfil the requirements under paragraph 2.

8.Where, when providing the investment service of investment advice or portfolio management, an investment firm does not obtain the information required under [F189rule 9A.2.1 of the Conduct of Business sourcebook], the firm shall not recommend investment services or financial instruments to the client or potential client.

9.Investment firms shall have, and be able to demonstrate, adequate policies and procedures in place to ensure that they understand the nature, features, including costs and risks of investment services and financial instruments selected for their clients and that they assess, while taking into account cost and complexity, whether equivalent investment services or financial instruments can meet their client's profile.

10.When providing the investment service of investment advice or portfolio management, an investment firm shall not recommend or decide to trade where none of the services or instruments are suitable for the client.

11.When providing investment advice or portfolio management services that involve switching investments, either by selling an instrument and buying another or by exercising a right to make a change in regard to an existing instrument, investment firms shall collect the necessary information on the client's existing investments and the recommended new investments and shall undertake an analysis of the costs and benefits of the switch, such that they are reasonably able to demonstrate that the benefits of switching are greater than the costs.

[F190The requirements laid down in the first subparagraph do not apply to services provided to professional clients.]

12.When providing investment advice, investment firms shall provide a report to the retail client that includes an outline of the advice given and how the recommendation provided is suitable for the retail client, including how it meets the client's objectives and personal circumstances with reference to the investment term required, client's knowledge and experience and client's attitude to risk and capacity for loss.

Investment firms shall draw clients' attention to and shall include in the suitability report information on whether the recommended services or instruments are likely to require the retail client to seek a periodic review of their arrangements.

Where an investment firm provides a service that involves periodic suitability assessments and reports, the subsequent reports after the initial service is established may only cover changes in the services or instruments involved and/or the circumstances of the client and may not need to repeat all the details of the first report.

13.Investment firms providing a periodic suitability assessment shall review, in order to enhance the service, the suitability of the recommendations given at least annually. The frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.

Textual Amendments

Article 55U.K.Provisions common to the assessment of suitability or appropriateness F191...

1.Investment firms shall ensure that the information regarding a client's or potential client's knowledge and experience in the investment field includes the following, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved:

(a)the types of service, transaction and financial instrument with which the client is familiar;

(b)the nature, volume, and frequency of the client's transactions in financial instruments and the period over which they have been carried out;

(c)the level of education, and profession or relevant former profession of the client or potential client.

2.An investment firm shall not discourage a client or potential client from providing information required for the purposes of [F192rules 9A.2.1 and 10A.2.1 of the Conduct of Business sourcebook].

3.An investment firm shall be entitled to rely on the information provided by its clients or potential clients unless it is aware or ought to be aware that the information is manifestly out of date, inaccurate or incomplete.

Textual Amendments

Article 56U.K.Assessment of appropriateness and related record-keeping obligations F193...

1.Investment firms, shall determine whether that client has the necessary experience and knowledge in order to understand the risks involved in relation to the product or investment service offered or demanded when assessing whether an investment service as referred to in [F194rule 10A.1.1 of the Conduct of Business sourcebook] is appropriate for a client.

An investment firm shall be entitled to assume that a professional client has the necessary experience and knowledge in order to understand the risks involved in relation to those particular investment services or transactions, or types of transaction or product, for which the client is classified as a professional client.

2.Investment firms shall maintain records of the appropriateness assessments undertaken which shall include the following:

(a)the result of the appropriateness assessment;

(b)any warning given to the client where the investment service or product purchase was assessed as potentially inappropriate for the client, whether the client asked to proceed with the transaction despite the warning and, where applicable, whether the firm accepted the client's request to proceed with the transaction;

(c)any warning given to the client where the client did not provide sufficient information to enable the firm to undertake an appropriateness assessment, whether the client asked to proceed with the transaction despite this warning and, where applicable, whether the firm accepted the client's request to proceed with the transaction.

Textual Amendments

Article 57U.K.Provision of services in non-complex instruments F195...

A financial instrument which is not explicitly specified in [F196rule 10A.4.1(2) of the Conduct of Business sourcebook] shall be considered as non-complex for the purposes of [F197paragraph (2)(f) of that rule] if it satisfies the following criteria:

(a)

[F198it does not fall within Article 2(1)(24)(c) of Regulation (EU) No 600/2014 or paragraphs 4 to 11 of Part 1 of Schedule 2 to the Regulated Activities Order;]

(b)

there are frequent opportunities to dispose of, redeem, or otherwise realise that instrument at prices that are publicly available to market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer;

(c)

it does not involve any actual or potential liability for the client that exceeds the cost of acquiring the instrument;

(d)

it does not incorporate a clause, condition or trigger that could fundamentally alter the nature or risk of the investment or pay out profile, such as investments that incorporate a right to convert the instrument into a different investment;

(e)

it does not include any explicit or implicit exit charges that have the effect of making the investment illiquid even though there are technically frequent opportunities to dispose of, redeem or otherwise realise it;

(f)

adequately comprehensive information on its characteristics is publicly available and is likely to be readily understood so as to enable the average retail client to make an informed judgment as to whether to enter into a transaction in that instrument.

Textual Amendments

Article 58U.K.Retail and Professional Client agreements F199...

Investment firms providing any investment service or the ancillary service referred to in [F200paragraph 1 of Part 3A of Schedule 2 to the Regulated Activities Order] to a client after the date of application of this Regulation shall enter into a written basic agreement with the client, in paper or another durable medium, with the client setting out the essential rights and obligations of the firm and the client. Investment firms providing investment advice shall comply with this obligation only where a periodic assessment of the suitability of the financial instruments or services recommended is performed.

The written agreement shall set out the essential rights and obligations of the parties, and shall include the following:

(a)

a description of the services, and where relevant the nature and extent of the investment advice, to be provided;

(b)

in case of portfolio management services, the types of financial instruments that may be purchased and sold and the types of transactions that may be undertaken on behalf of the client, as well as any instruments or transactions prohibited; and

(c)

a description of the main features of any services referred to in [F201paragraph 1 of Part 3A of Schedule 2 to the Regulated Activities Order] to be provided, including where applicable the role of the firm with respect to corporate actions relating to client instruments and the terms on which securities financing transactions involving client securities will generate a return for the client.

Textual Amendments

SECTION 4 U.K. Reporting to clients

Article 59U.K.Reporting obligations in respect of execution of orders other than for portfolio management F202...

1.Investment firms having carried out an order on [F203behalf of a retail client or a professional client], other than for portfolio management, shall, in respect of that order:

(a)promptly provide the [F204retail client or professional client, as applicable,] in a durable medium, with the essential information concerning the execution of that order;

(b)send a notice to [F205a retail client] in a durable medium confirming execution of the order as soon as possible and no later than the first business day following execution or, where the confirmation is received by the investment firm from a third party, no later than the first business day following receipt of the confirmation from the third party.

Point (b) shall not apply where the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the client by another person.

Points (a) and (b) shall not apply where orders executed on behalf of clients relate to bonds funding mortgage loan agreements with the said clients, in which case the report on the transaction shall be made at the same time as the terms of the mortgage loan are communicated, but no later than one month after the execution of the order.

2.In addition to the requirements under paragraph 1, investment firms shall supply the client, on request, with information about the status of his order.

3.In the case [F206of retail client] orders relating to units or shares in a collective investment undertaking which are executed periodically, investment firms shall either take the action specified in point (b) of paragraph 1 or provide [F207the retail client], at least once every six months, with the information listed in paragraph 4 in respect of those transactions.

4.The notice referred to in point (b) of paragraph 1 shall include such of the following information as is applicable and, where relevant, in accordance with the regulatory technical standards on reporting obligations adopted in accordance with Article 26 of Regulation (EU) No 600/2014:

(a)the reporting firm identification;

(b)the name or other designation of [F207the retail client];

(c)the trading day;

(d)the trading time;

(e)the type of the order;

(f)the venue identification;

(g)the instrument identification;

(h)the buy/sell indicator;

(i)the nature of the order if other than buy/sell;

(j)the quantity;

(k)the unit price;

(l)the total consideration;

(m)a total sum of the commissions and expenses charged and, where [F207the retail client] so requests, an itemised breakdown including, where relevant, the amount of any mark-up or mark-down imposed where the transaction was executed by an investment firm when dealing on own account, and the investment firm owes a duty of best execution to [F207the retail client];

(n)the rate of exchange obtained where the transaction involves a conversion of currency;

(o)[F207the retail client]'s responsibilities in relation to the settlement of the transaction, including the time limit for payment or delivery as well as the appropriate account details where these details and responsibilities have not previously been notified to [F207the retail client];

(p)where [F207the retail client]'s counterparty was the investment firm itself or any person in the investment firm's group or another client of the investment firm, the fact that this was the case unless the order was executed through a trading system that facilitates anonymous trading.

For the purposes of point (k), where the order is executed in tranches, the investment firm may supply [F207the retail client] with information about the price of each tranche or the average price. Where the average price is provided, the investment firm shall supply [F207the retail client] with information about the price of each tranche upon request.

5.The investment firm may provide [F207the retail client] with the information referred to in paragraph 4 using standard codes if it also provides an explanation of the codes used.

Textual Amendments

Article 60U.K.Reporting obligations in respect of portfolio management F208...

1.Investments firms which provide the service of portfolio management to [F209retail clients or professional] clients shall provide each such client with a periodic statement in a durable medium of the portfolio management activities carried out on behalf of that client unless such a statement is provided by another person.

2.The periodic statement required under paragraph 1 shall provide a fair and balanced review of the activities undertaken and of the performance of the portfolio during the reporting period and shall include, where relevant, the following information [F210to retail clients]:

(a)the name of the investment firm;

(b)the name or other designation of the client's account;

(c)a statement of the contents and the valuation of the portfolio, including details of each financial instrument held, its market value, or fair value if market value is unavailable and the cash balance at the beginning and at the end of the reporting period, and the performance of the portfolio during the reporting period;

(d)the total amount of fees and charges incurred during the reporting period, itemising at least total management fees and total costs associated with execution, and including, where relevant, a statement that a more detailed breakdown will be provided on request;

(e)a comparison of performance during the period covered by the statement with the investment performance benchmark (if any) agreed between the investment firm and the client;

(f)the total amount of dividends, interest and other payments received during the reporting period in relation to the client's portfolio;

(g)information about other corporate actions giving rights in relation to financial instruments held in the portfolio;

(h)for each transaction executed during the period, the information referred to in Article 59(4)(c) to (l) where relevant, unless the client elects to receive information about executed transactions on a transaction-by-transaction basis, in which case paragraph 4 of this Article shall apply.

3.The periodic statement referred to in paragraph 1 shall be provided [F211to retail clients] once every three months, except in the following cases:

(a)where the investment firm provides its [F212retail] clients with access to an online system, which qualifies as a durable medium, where up-to-date valuations of the client's portfolio can be accessed and where the client can easily access the information required by Article 63(2) and the firm has evidence that the client has accessed a valuation of their portfolio at least once during the relevant quarter;

(b)in cases where paragraph 4 applies, the periodic statement must be provided at least once every 12 months;

(c)where the agreement between an investment firm and a [F213retail] client for a portfolio management service authorises a leveraged portfolio, the periodic statement must be provided at least once a month.

The exception provided for in point (b) shall not apply in the case of transactions in financial instruments covered by [F214Article 2(1)(24)(c) of Regulation (EU) No 600/2014 or paragraphs 4 to 11 of Part 1 of Schedule 2 to the Regulated Activities Order].

4.Investment firms, in cases where the [F215retail] client elects to receive information about executed transactions on a transaction-by-transaction basis, shall provide promptly to the [F215retail] client, on the execution of a transaction by the portfolio manager, the essential information concerning that transaction in a durable medium.

The investment firm shall send the [F215retail] client a notice confirming the transaction and containing the information referred to in Article 59(4) no later than the first business day following that execution or, where the confirmation is received by the investment firm from a third party, no later than the first business day following receipt of the confirmation from the third party.

The second subparagraph shall not apply where the confirmation would contain the same information as a confirmation that is to be promptly dispatched to the [F215retail] client by another person.

Textual Amendments

Article 61U.K.Reporting obligations in respect of eligible counterparties F216...

The requirements [F217in Articles 46 to 51 and 59 do not apply to services provided to eligible counterparties.]

Textual Amendments

F219Article 62U.K.Additional reporting obligations for portfolio management or contingent liability transactions F218...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

Article 63U.K.Statements of client financial instruments or client funds F220...

1.Investment firms that hold client financial instruments or client funds shall send at least on a quarterly basis, to each client for whom they hold financial instruments or funds, a statement in a durable medium of those financial instruments or funds unless such a statement has been provided in any other periodic statement. Upon client request, firms shall provide such statement more frequently at a commercial cost.

The first subparagraph shall not apply to a credit institution [F221that is a CRR firm as defined in Article 4(1)(2A) of Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms] in respect of deposits within the meaning [F222of Article 2(1)(23A) of Regulation (EU) No 600/2014] held by that institution.

2.The statement of client assets referred to in paragraph 1 shall include the following information:

(a)details of all the financial instruments or funds held by the investment firm for the client at the end of the period covered by the statement;

(b)the extent to which any client financial instruments or client funds have been the subject of securities financing transactions;

(c)the extent of any benefit that has accrued to the client by virtue of participation in any securities financing transactions, and the basis on which that benefit has accrued;

(d)a clear indication of the assets or funds which are subject to the rules of [F223the UK law on markets in financial instruments] and those that are not, such as those that are subject to Title Transfer Collateral Agreement;

(e)a clear indication of which assets are affected by some peculiarities in their ownership status, for instance due to a security interest;

(f)the market or estimated value, when the market value is not available, of the financial instruments included in the statement with a clear indication of the fact that the absence of a market price is likely to be indicative of a lack of liquidity. The evaluation of the estimated value shall be performed by the firm on a best effort basis.

In cases where the portfolio of a client includes the proceeds of one or more unsettled transactions, the information referred to in point (a) may be based either on the trade date or the settlement date, provided that the same basis is applied consistently to all such information in the statement.

The periodic statement of client assets referred to in paragraph 1 shall not be provided where the investment firm provides its clients with access to an online system, which qualifies as a durable medium, where up-to-date statements of client's financial instruments or funds can be easily accessed by the client and the firm has evidence that the client has accessed this statement at least once during the relevant quarter.

3.Investment firms which hold financial instruments or funds and which carry out the service of portfolio management for a client may include the statement of client assets referred to in paragraph 1 in the periodic statement it provides to that client pursuant to Article 60(1).

Textual Amendments

SECTION 5 U.K. Best execution

Article 64U.K.Best execution criteria F224...

1.When executing client orders, investment firms shall take into account the following criteria for determining the relative importance of the factors referred to in [F225rule 11.2A.2 of the Conduct of Business sourcebook]:

(a)the characteristics of the client including the categorisation of the client as retail or professional;

(b)the characteristics of the client order, including where the order involves a securities financing transaction (SFT);

(c)the characteristics of financial instruments that are the subject of that order;

(d)the characteristics of the execution venues to which that order can be directed.

For the purposes of this Article and Articles 65 and 66, ‘execution venue’ includes a regulated market, an MTF, an OTF, a systematic internaliser, or a market maker or other liquidity provider or an entity that performs a similar function in a third country to the functions performed by any of the foregoing.

2.An investment firm satisfies its obligation under [F226rules 11.2A.2, 11.2A.3, 11.2A.9, 11.2A.12 and 11.2A.15 of the Conduct of Business sourcebook] to take all sufficient steps to obtain the best possible result for a client to the extent that it executes an order or a specific aspect of an order following specific instructions from the client relating to the order or the specific aspect of the order.

3.Investment firms shall not structure or charge their commissions in such a way as to discriminate unfairly between execution venues.

4.When executing orders or taking decision to deal in OTC products including bespoke products, the investment firm shall check the fairness of the price proposed to the client, by gathering market data used in the estimation of the price of such product and, where possible, by comparing with similar or comparable products.

Textual Amendments

Article 65U.K.Duty of investment firms carrying out portfolio management and reception and transmission of orders to act in the best interests of the client F227...

1.Investment firms, when providing portfolio management, shall comply with the obligation under [F228rule 2.1.1. of the Conduct of Business sourcebook] to act in accordance with the best interests of their clients when placing orders with other entities for execution that result from decisions by the investment firm to deal in financial instruments on behalf of its client.

2.Investment firms, when providing the service of reception and transmission of orders, shall comply with the obligation under [F229rule 2.1.1. of the Conduct of Business sourcebook] to act in accordance with the best interests of their clients when transmitting client orders to other entities for execution.

3.In order to comply with paragraphs 1 or 2, investment firms shall comply with paragraphs 4 to 7 of this Article and Article 64(4).

4.Investment firms shall take all sufficient steps to obtain the best possible result for their clients taking into account the factors referred to in [F230rule 11.2A.2 of the Conduct of Business sourcebook]. The relative importance of these factors shall be determined by reference to the criteria set out in Article 64(1) and, for retail clients, to the requirement under [F231rule 11.2A.9 of the Conduct of Business sourcebook].

An investment firm satisfies its obligations under paragraph 1 or 2, and is not required to take the steps mentioned in this paragraph, to the extent that it follows specific instructions from its client when placing an order with, or transmitting an order to, another entity for execution.

5.Investment firms shall establish and implement a policy that enables them to comply with the obligation in paragraph 4. The policy shall identify, in respect of each class of instruments, the entities with which the orders are placed or to which the investment firm transmits orders for execution. The entities identified shall have execution arrangements that enable the investment firm to comply with its obligations under this Article when it places or transmits orders to that entity for execution.

6.Investment firms shall provide information to their clients on the policy established in accordance with paragraph 5 and [F232paragraphs 2 to 8] of Article 66. Investment firms shall provide clients with appropriate information about the firm and its services and the entities chosen for execution. F233...

Upon reasonable request from a client, investment firms shall provide its clients or potential clients with information about entities where the orders are transmitted or placed for execution.

7.Investment firms shall monitor on a regular basis the effectiveness of the policy established in accordance with paragraph 5 and, in particular, shall monitor the execution quality of the entities identified in that policy and, where appropriate, correct any deficiencies.

Investment firms shall review the policy and arrangements at least annually. Such a review shall also be carried out whenever a material change occurs that affects the firm's ability to continue to obtain the best possible result for their clients.

Investment firms shall assess whether a material change has occurred and shall consider making changes to the execution venues or entities on which they place significant reliance in meeting the overarching best execution requirement.

A material change shall be a significant event that could impact parameters of best execution such as cost, price, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order.

8.This Article shall not apply where the investment firm that provides the service of portfolio management or reception and transmission of orders also executes the orders received or the decisions to deal on behalf of its client's portfolio. [F234In those cases, Articles 64 and 66 of this Regulation F235... shall apply.]

Textual Amendments

Article 66U.K.Execution policy F236...

1.Investment firms shall review, at least on an annual basis execution policy established pursuant to [F237rule 11.2A.20 of the Conduct of Business sourcebook], as well as their order execution arrangements.

Such a review shall also be carried out whenever a material change as defined in Article 65(7) occurs that affects the firm's ability to continue to obtain the best possible result for the execution of its client orders on a consistent basis using the venues included in its execution policy. An investment firm shall assess whether a material change has occurred and shall consider making changes to the relative importance of the best execution factors in meeting the overarching best execution requirement.

2.The information on the execution policy shall be customised depending on the class of financial instrument and type of the service provided and shall include information set out in paragraphs 3 to 9.

3.Investment firms shall provide clients with the following details on their execution policy in good time prior to the provision of the service:

(a)an account of the relative importance the investment firm assigns, in accordance with the criteria specified in Article 59(1), to the factors referred to in [F238rule 11.2A.2 of the Conduct of Business sourcebook], or the process by which the firm determines the relative importance of those factors.

(b)a list of the execution venues on which the firm places significant reliance in meeting its obligation to take all reasonable steps to obtain on a consistent basis the best possible result for the execution of client orders and specifying which execution venues are used for each class of financial instruments, for retail client orders, professional client orders and SFTs;

(c)a list of factors used to select an execution venue, including qualitative factors such as clearing schemes, circuit breakers, scheduled actions, or any other relevant consideration, and the relative importance of each factor; The information about the factors used to select an execution venue for execution shall be consistent with the controls used by the firm to demonstrate to clients that best execution has been achieved in a consistent basis when reviewing the adequacy of its policy and arrangements;

(d)how the execution factors of price costs, speed, likelihood of execution and any other relevant factors are considered as part of all sufficient steps to obtain the best possible result for the client;

(e)where applicable, information that the firm executes orders outside a trading venue, the consequences, for example counterparty risk arising from execution outside a trading venue, and upon client request, additional information about the consequences of this means of execution;

(f)a clear and prominent warning that any specific instructions from a client may prevent the firm from taking the steps that it has designed and implemented in its execution policy to obtain the best possible result for the execution of those orders in respect of the elements covered by those instructions;

(g)a summary of the selection process for execution venues, execution strategies employed, the procedures and process used to analyse the quality of execution obtained and how the firms monitor and verify that the best possible results were obtained for clients.

That information shall be provided in a durable medium, or by means of a website (where that does not constitute a durable medium) provided that the conditions specified in Article 3(2) are satisfied.

4.Where investment firms apply different fees depending on the execution venue, the firm shall explain these differences in sufficient detail in order to allow the client to understand the advantages and the disadvantages of the choice of a single execution venue.

5.Where investment firms invite clients to choose an execution venue, fair, clear and not misleading information shall be provided to prevent the client from choosing one execution venue rather than another on the sole basis of the price policy applied by the firm.

6.Investment firms shall only receive third-party payments that comply with [F239rules 2.3A.5, 2.3A.6 and 2.3A.7E of the Conduct of Business sourcebook] and shall inform clients about the inducements that the firm may receive from the execution venues. The information shall specify the fees charged by the investment firm to all counterparties involved in the transaction, and where the fees vary depending on the client, the information shall indicate the maximum fees or range of the fees that may be payable.

7.Where an investment firm charges more than one participant in a transaction, in compliance with [F240rules 2.3A.5, 2.3A.6 and 2.3A.7E of the Conduct of Business sourcebook], the firm shall inform its clients of the value of any monetary or non-monetary benefits received by the firm.

8.Where a client makes reasonable and proportionate requests for information about its policies or arrangements and how they are reviewed to an investment firm, that investment firm shall answer clearly and within a reasonable time.

9.Where an investment firm executes orders for retail clients, it shall provide those clients with a summary of the relevant policy, focused on the total costs they incur. F241...

Textual Amendments

SECTION 6 U.K. Client order handling

Article 67U.K.General principles F242...

1.Investment firms shall satisfy the following conditions when carrying out client orders:

(a)ensure that orders executed on behalf of clients are promptly and accurately recorded and allocated;

(b)carry out otherwise comparable client orders sequentially and promptly unless the characteristics of the order or prevailing market conditions make this impracticable, or the interests of the client require otherwise;

(c)inform a retail client about any material difficulty relevant to the proper carrying out of orders promptly upon becoming aware of the difficulty.

2.Where an investment firm is responsible for overseeing or arranging the settlement of an executed order, it shall take all reasonable steps to ensure that any client financial instruments or client funds received in settlement of that executed order are promptly and correctly delivered to the account of the appropriate client.

3.An investment firm shall not misuse information relating to pending client orders, and shall take all reasonable steps to prevent the misuse of such information by any of its relevant persons.

Textual Amendments

Article 68U.K.Aggregation and allocation of orders F243...

1.Investment firms shall not carry out a client order or a transaction for own account in aggregation with another client order unless the following conditions are met:

(a)it is unlikely that the aggregation of orders and transactions will work overall to the disadvantage of any client whose order is to be aggregated;

(b)it is disclosed to each client whose order is to be aggregated that the effect of aggregation may work to its disadvantage in relation to a particular order;

(c)an order allocation policy is established and effectively implemented, providing for the fair allocation of aggregated orders and transactions, including how the volume and price of orders determines allocations and the treatment of partial executions.

2.Where an investment firm aggregates an order with one or more other client orders and the aggregated order is partially executed, it shall allocate the related trades in accordance with its order allocation policy.

Textual Amendments

Article 69U.K.Aggregation and allocation of transactions for own account F244...

1.Investment firms which have aggregated transactions for own account with one or more client orders shall not allocate the related trades in a way that is detrimental to a client.

2.Where an investment firm aggregates a client order with a transaction for own account and the aggregated order is partially executed, it shall allocate the related trades to the client in priority to the firm.

Where an investment firm is able to demonstrate on reasonable grounds that without the combination it would not have been able to carry out the order on such advantageous terms, or at all, it may allocate the transaction for own account proportionally, in accordance with its order allocation policy referred to in Article 68(1)(c).

3.As part of the order allocation policy referred to in Article 68(1)(c), investment firms shall put in place procedures designed to prevent the reallocation, in a way that is detrimental to the client, of transactions for own account which are executed in combination with client orders.

Textual Amendments

Article 70U.K.Prompt fair and expeditious execution of client orders and publication of unexecuted client limit orders for shares traded on a trading venue F245...

1.A client limit order in respect of shares admitted to trading on a regulated market or traded on a trading venue which have not been immediately executed under prevailing market conditions as referred to in [F246rule 11.4.1 of the Conduct of Business sourcebook] shall be considered available to the public when the investment firm has submitted the order for execution to a regulated market or a MTF or the order has been published by [F247a person authorised to provide data reporting services under the [F248Data Reporting Services Regulations 2024]] and can be easily executed as soon as market conditions allow.

2.Regulated markets and MTFs shall be prioritised according to the firm's execution policy to ensure execution as soon as market conditions allow.

Textual Amendments

SECTION 7 U.K. Eligible counterparties

Article 71U.K.Eligible counterparties F249...

1.In addition to the categories which are explicitly set out in [F250rule 3.6.2 of the Conduct of Business sourcebook], [F251the FCA] may recognise as eligible counterparty F252... an undertaking falling within a category of clients who are to be considered professional clients in accordance with [F253paragraph 3(a), (b) and (c) of Schedule 1 to Regulation (EU) No 600/2014].

2.Where, pursuant to [F254rule 3.7.1 of the Conduct of Business sourcebook], an eligible counterparty requests treatment as a client whose business with an investment firm is subject to [F255rules in the Conduct of Business; Market Conduct; Senior Management Arrangements, Systems and Controls and the Product Intervention and Product Governance sourcebooks which were relied on by the United Kingdom immediately before IP completion day to implement Articles 24, 25, 27 and 28 of Directive 2014/65/EU (“the relevant rules”)], the request should be made in writing, and shall indicate whether the treatment as retail client or professional client refers to one or more investment services or transactions, or one or more types of transaction or product.

3.Where an eligible counterparty requests treatment as a client whose business with an investment firm is subject to [F256the relevant rules], but does not expressly request treatment as a retail client, the firm shall treat that eligible counterparty as a professional client.

4.Where the eligible counterparty expressly requests treatment as a retail client, the investment firm shall treat the eligible counterparty as a retail client, applying the provisions in respect of requests of non-professional treatment specified in [F257paragraph 4 of Schedule 1 to Regulation (EU) No 600/2014].

5.Where a client requests to be treated as an eligible counterparty, in accordance with [F258rule 3.6.4A of the Conduct of Business sourcebook], the following procedure shall be followed:

(a)the investment firm shall provide the client with a clear written warning of the consequences for the client of such a request, including the protections they may lose;

(b)the client shall confirm in writing the request to be treated as an eligible counterparty either generally or in respect of one or more investment services or a transaction or type of transaction or product and that they are aware of the consequences of the protection they may lose as a result of the request.

Textual Amendments

SECTION 8 U.K. Record-keeping

Article 72U.K.Retention of records F259...

1.The records shall be retained in a medium that allows the storage of information in a way accessible for future reference by the competent authority, and in such a form and manner that the following conditions are met:

(a)the competent authority is able to access them readily and to reconstitute each key stage of the processing of each transaction;

(b)it is possible for any corrections or other amendments, and the contents of the records prior to such corrections or amendments, to be easily ascertained;

(c)it is not possible for the records otherwise to be manipulated or altered;

(d)it allows IT or any other efficient exploitation when the analysis of the data cannot be easily carried out due to the volume and the nature of the data; and

(e)the firm's arrangements comply with the record keeping requirements irrespective of the technology used.

2.Investment firms shall keep at least the records identified in Annex I to this Regulation depending upon the nature of their activities.

The list of records identified in Annex I to this Regulation is without prejudice to any other record-keeping obligations arising from other legislation.

3.Investment firms shall also keep records of any policies and procedures they are required to maintain pursuant to [F260Regulation (EU) No 600/2014, Regulation (EU) No 596/2014 and their implementing measures (as amended under the European Union (Withdrawal) Act 2018) and the law of the United Kingdom or any part of the United Kingdom which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2014/65/EU, Directive 2014/57/EU and their implementing measures] in writing.

Competent authorities may require investment firms to keep additional records to the list identified in Annex I to this Regulation.

Textual Amendments

Article 73U.K.Record keeping of rights and obligations of the investment firm and the client F261...

Records which set out the respective rights and obligations of the investment firm and the client under an agreement to provide services, or the terms on which the firm provides services to the client, shall be retained for at least the duration of the relationship with the client.

Textual Amendments

Article 74U.K.Record keeping of client orders and decision to deal F262...

An investment firm shall, in relation to every initial order received from a client and in relation to every initial decision to deal taken, immediately record and keep at the disposal of the competent authority at least the details set out in Section 1 of Annex IV to this Regulation to the extent they are applicable to the order or decision to deal in question.

Where the details set out in Section 1 of Annex IV to this Regulation are also prescribed under Articles 25 and 26 of Regulation (EU) No 600/2014, these details should be maintained in a consistent way and according to the same standards prescribed under Articles 25 and 26 of Regulation (EU) No 600/2014.

Textual Amendments

Article 75U.K.Record keeping of transactions and order processing F263...

Investment firms shall, immediately after receiving a client order or making a decision to deal to the extent they are applicable to the order or decision to deal in question, record and keep at the disposal of the competent authority at least the details set out in Section 2 of Annex IV.

Where the details set out in Section 2 of Annex IV are also prescribed under Articles 25 and 26 of Regulation (EU) No 600/2014, they shall be maintained in a consistent way and according to the same standards prescribed under Articles 25 and 26 of Regulation (EU) No 600/2014.

Textual Amendments

Article 76U.K.Recording of telephone conversations or electronic communications F264...

1.Investment firms shall establish, implement and maintain an effective recording of telephone conversations and electronic communications policy, set out in writing, and appropriate to the size and organisation of the firm, and the nature, scale and complexity of its business. The policy shall include the following content:

(a)the identification of the telephone conversations and electronic communications, including relevant internal telephone conversations and electronic communications, that are subject to the recording requirements in accordance with [F265rules 10A.1.6 to 10A.1.8 and 10A.1.11 to 10.1.14 of the Senior Management Arrangements, Systems and Control sourcebook (“the relevant rules”)]; and

(b)the specification of the procedures to be followed and measures to be adopted to ensure the firm's compliance with [F266rule 10A.1.6 and 10A.1.7 of the Senior Management Arrangements, Systems and Controls sourcebook] where exceptional circumstances arise and the firm is unable to record the conversation/communication on devices issued, accepted or permitted by the firm. Evidence of such circumstances shall be retained and shall be accessible to [F267the FCA].

2.Investment firms shall ensure that the management body has effective oversight and control over the policies and procedures relating to the firm's recording of telephone conversations and electronic communications.

3.Investment firms shall ensure that the arrangements to comply with recording requirements are technology-neutral. Firms shall periodically evaluate the effectiveness of the firm's policies and procedures and adopt any such alternative or additional measures and procedures as are necessary and appropriate. At a minimum, such adoption of alternative or additional measures shall occur when a new medium of communication is accepted or permitted for use by the firm.

4.Investment firms shall keep and regularly update a record of those individuals who have firm devices or privately owned devices that have been approved for use by the firm.

5.Investment firms shall educate and train employees in procedures governing the requirements in [F268the relevant rules].

6.To monitor compliance with the recording and record-keeping requirements in accordance with [F269the relevant rules], investment firms shall periodically monitor the records of transactions and orders subject to these requirements, including relevant conversations. Such monitoring shall be risk based and proportionate.

7.Investment firms shall demonstrate the policies, procedures and management oversight of the recording rules to the [F270FCA] upon request.

8.Before investment firms provide investment services and activities relating to the reception, transmission and execution of orders to new and existing clients, firms shall inform the client of the following:

(a)that the conversations and communications are being recorded; and

(b)that a copy of the recording of such conversations with the client and communications with the client will be available on request for a period of five years and, where requested by the competent authority, for a period of up to seven years.

The information referred to in the first sub-paragraph shall be presented in the same language(s) as that used to provide investment services to clients.

9.Investment firms shall record in a durable medium all relevant information related to relevant face-to-face conversations with clients. The information recorded shall include at least the following:

(a)date and time of meetings;

(b)location of meetings;

(c)identity of the attendees;

(d)initiator of the meetings; and

(e)relevant information about the client order including the price, volume, type of order and when it shall be transmitted or executed.

10.Records shall be stored in a durable medium, which allows them to be replayed or copied and must be retained in a format that does not allow the original record to be altered or deleted.

Records shall be stored in a medium so that they are readily accessible and available to clients on request.

Firms shall ensure the quality, accuracy and completeness of the records of all telephone recordings and electronic communications.

11.The period of time for the retention of a record shall begin on the date when the record is created.

Textual Amendments

SECTION 9 U.K. SME growth markets

Article 77U.K.Qualification as an SME F271...

1.An issuer whose shares have been admitted to trading for less than three years shall be deemed an SME for the purpose of [F272rule 5.10.2(1) of the Market Conduct sourcebook] where its market capitalisation is below EUR 200 million based on any of the following:

(a)the closing share price of the first day of trading, if its shares have been admitted to trading for less than one year;

(b)the last closing share price of the first year of trading, if its shares have been admitted to trading for more than one year but less than two years;

(c)the average of the last closing share prices of each of the first two years of trading, if its shares have been admitted to trading for more than two years but less than three years.

[F2732 . An issuer that has no equity instrument traded on any trading venue shall be deemed an SME for the purposes of [F274regulation 2(1) of the Markets in Financial Instruments Regulation 2017] if the nominal value of its debt issuances over the previous calendar year, on all trading venues across the [F275United Kingdom], does not exceed EUR 50 million.]

Textual Amendments

Article 78U.K.Registration as an SME growth market F276...

1.When determining whether at least 50 % of the issuers admitted to trading on an MTF are SMEs for the purposes of registration as an SME growth market in accordance with [F277rule 5.10.2(1) of the Market Conduct sourcebook, the FCA] shall calculate the average ratio of SMEs over the total number of issuers whose financial instruments are admitted to trading on that market. The average ratio shall be calculated on 31 December of the previous calendar year as the average of the twelve end-of-month ratios of that calendar year.

Without prejudice to the other conditions for registration specified in [F278paragraphs (2) to (7) of rule 5.10.2 of the Market Conduct sourcebook, the FCA] shall register as an SME growth market an applicant with no previous operating history and, after three calendar years have elapsed, shall verify that it complies with the minimum proportion of SMEs, as determined in accordance with the first subparagraph.

2.With regard to the criteria laid out in [F279paragraphs (2), (3), (4) and (6) of rule 5.10.2 of the Market Conduct sourcebook, the FCA] shall not register the MTF as an SME growth market unless it is satisfied that the MTF:

(a)has established and applies rules providing for objective and transparent criteria for the initial and ongoing admission to trading of issuers on its venue;

(b)has an operating model which is appropriate for the performance of its functions and ensures the maintenance of fair and orderly trading in the financial instruments admitted to trading on its venue;

(c)has established and applies rules that require an issuer seeking admission of its financial instruments to trading on the MTF, to publish, in cases where [F280the UK law implementing] Directive 2003/71/EC does not apply, an appropriate admission document, drawn up under the responsibility of the issuer and clearly stating whether or not it has been approved or reviewed and by whom;

(d)has established and applies rules that define the minimum content of the admission document referred to under point (c), in such a way that sufficient information is provided to investors to enable them to make an informed assessment of the financial position and prospects of the issuer, and the rights attaching to its securities;

(e)requires the issuer to state, in the admission document referred to under point (c), whether or not, in its opinion, its working capital is sufficient for its present requirements or, if not, how it proposes to provide the additional working capital needed;

(f)has made arrangements for the admission document referred to under point (c) to be subject to an appropriate review of its completeness, consistency and comprehensibility;

(g)requires the issuers whose securities are traded on its venue to publish annual financial reports within 6 months after the end of each financial year, and half yearly financial reports within 4 months after the end of the first 6 months of each financial year;

(h)ensures dissemination to the public of prospectuses drawn up in accordance with [F281the UK law implementing] Directive 2003/71/EC, admission documents referred to under point (c), financial reports referred to under point (g) and information defined in Article 7(1) of Regulation (EU) No 596/2014 publicly disclosed by the issuers whose securities are traded on its venue, by publishing them on its website, or providing thereon a direct link to the page of the website of the issuers where such documents, reports and information are published;

(i)ensures that the regulatory information referred to under point (h) and direct links remain available on its website for a period of at least five years [F273;]

[F282(j) requires issuers seeking admission of their shares to trading on its venue for the first time to allocate a minimum amount of their issued shares available for trading on the MTF, in accordance with a threshold to be established by the operator of the MTF and expressed either as an absolute value or as a percentage of the total issued share capital.]

[F282The operator of an MTF may exempt issuers that have no equity instruments traded on the MTF from the requirement to publish half-yearly financial reports referred to in point (g) of the first subparagraph of this paragraph. Where the operator of an MTF exercises the option pursuant to the first sentence of this subparagraph, the [F283FCA] shall not require, for the purposes of point (g) of the first subparagraph, that issuers that have no equity instruments traded on the MTF be required to publish half-yearly financial reports.]

[F2843.For the purposes of paragraph 2, “UK law implementing Directive 2003/71/EC” means the law of the United Kingdom or of any part of the United Kingdom which was relied on by the United Kingdom immediately before IP completion day to implement Directive 2003/71/EC, as that law has been amended under the European Union (Withdrawal) Act 2018.]

Textual Amendments

Article 79U.K.Deregistration as an SME growth market F285...

1.With regard to the proportion of SMEs, and without prejudice to the other conditions specified in [F286paragraphs (2) to (7) of rule 5.10.2 of the Market Conduct sourcebook] and in Article 78(2) of this Regulation, an SME growth market shall only be deregistered by the [F287FCA] where the proportion of SMEs, as determined in accordance with the first subparagraph of Article 78(1) of this Regulation, falls below 50 % for three consecutive calendar years.

2.With regard to the conditions specified in [F288paragraphs (2) to (7) of rule 5.10.2 of the Market Conduct sourcebook] and in Article 78(2) of this Regulation, the operator of an SME growth market shall be deregistered by the [F289FCA] where such conditions are no longer satisfied.

Textual Amendments

CHAPTER IVU.K. OPERATING OBLIGATIONS FOR TRADING VENUES

Article 80U.K.Circumstances constituting significant damage to investors' interests and the orderly functioning of the market F290...

1.For the purpose of [F291sections 313CA and 313CC of FSMA, paragraph 7E of the Schedule to the Recognition Requirements Regulations and rules 5.6.1 and 5A.9.1 of the Market Conduct sourcebook], a suspension or a removal from trading of a financial instrument shall be deemed likely to cause significant damage to investors' interests or the orderly functioning of the market at least in the following circumstances:

(a)where it would create a systemic risk undermining financial stability, such as where the need exists to unwind a dominant market position, or where settlement obligations would not be met in a significant volume;

(b)where the continuation of trading on the market is necessary to perform critical post-trade risk management functions when there is a need for the liquidation of financial instruments due to the default of a clearing member under the default procedures of a CCP and a CCP would be exposed to unacceptable risks as a result of an inability to calculate margin requirements;

(c)where the financial viability of the issuer would be threatened, such as where it is involved in a corporate transaction or capital raising.

2.For the purpose of determining whether a suspension or a removal is likely to cause significant damage to the investors' interest or the orderly functioning of the markets in any particular case, the national competent authority, a market operator operating a regulated market or an investment firm or a market operator operating an MTF or an OTF shall consider all relevant factors, including:

(a)the relevance of the market in terms of liquidity where the consequences of the actions are likely to be more significant where those markets are more relevant in terms of liquidity than in other markets;

(b)the nature of the envisaged action where actions with a sustained or lasting impact on the ability of investors to trade a financial instrument on trading venues, such as removals, are likely to have a greater impact on investors than other actions;

(c)the knock-on effects of a suspension or removal of sufficiently related derivatives, indices or benchmarks for which the removed or suspended instrument serves as an underlying or constituent;

(d)the effects of a suspension on the interests of market end users who are not financial counterparties, such as entities trading in financial instruments to hedge commercial risks.

3.The factors set out in paragraph 2 shall also be taken into consideration where a national competent authority, a market operator operating a regulated market or an investment firm or a market operator operating an MTF or an OTF decides not to suspend or remove a financial instrument on the basis of circumstances not covered by the list of paragraph 1.

Textual Amendments

Article 81U.K.Circumstances where significant infringements of the rules of a trading venue or disorderly trading conditions or system disruptions in relation to a financial instrument may be assumed F292...

1.When assessing whether the requirement to immediately inform their competent authorities of significant infringements of the rules of their trading venue or disorderly trading conditions or system disruptions in relation to a financial instrument applies, operators of trading venues shall consider the signals listed in Section A of Annex III to this Regulation.

2.Information shall only be required in cases of significant events which have the potential to jeopardise the role and function of trading venues as part of the financial market infrastructure.

Textual Amendments

Article 82U.K.Circumstances where a conduct indicating behaviour that is prohibited under Regulation (EU) No 596/2014 may be assumed F293...

1.When assessing whether the requirement to immediately inform [F294the FCA] of conduct that may indicate behaviour that is prohibited under Regulation (EU) No 596/2014 applies, operators of trading venues shall consider the signals listed in Section B of Annex III to this Regulation.

2.The operator of one or several trading venues where a financial instrument and/or related financial instrument are traded shall apply a proportionate approach and shall exercise judgment on the signals triggered, including any relevant signals not specifically included in Section B of Annex III to this Regulation, before informing the relevant national competent authority, taking into account the following:

(a)the deviations from the usual trading pattern of the financial instruments admitted to trading or traded on its trading venue; and

(b)the information available or accessible to the operator, whether that be internally as part of the operations of the trading venue or publicly available.

3.The operator of one or several trading venues shall take into account front running behaviours, which consist in a market member or participant trading, for its own account, ahead of its client, and shall use for that purpose the order book data required to be recorded by the trading venue pursuant to Article 25 of Regulation (EU) No 600/2014, in particular those relating to the way the member or participant conducts its trading activity.

Textual Amendments

CHAPTER VU.K. POSITION REPORTING IN COMMODITY DERIVATIVES

Article 83U.K.Position reporting F295...

1.For the purpose of the weekly reports referred to in [F296paragraph 7BB of the Schedule to the Recognition Requirement Regulations and rule 10.4.3 of the Market Conduct sourcebook], the obligation for a trading venue to make public such a report shall apply when both of the following two thresholds are met:

(a)20 open position holders exist in a given contract on a given trading venue; and

(b)the absolute amount of the gross long or short volume of total open interest, expressed in the number of lots of the relevant commodity derivative, exceeds a level of four times the deliverable supply in the same commodity derivative, expressed in number of lots.

Where the commodity derivative does not have a physically deliverable underlying asset and for emission allowances and derivatives thereof, point (b) shall not apply.

2.The threshold set out in point (a) of paragraph 1 shall apply in aggregate on the basis of all of the categories of persons regardless of the numbers of position holders in any single category of persons.

3.For contracts where there are less than five position holders active in a given category of persons, the number of position holders in that category shall not be published.

4.For contracts that meet the conditions set out in points (a) and (b) of paragraph 1 for the first time, trading venues shall publish the contracts first weekly report as soon as it is feasibly practical, and in any event no later than 3 weeks from the date on which the thresholds are first triggered.

5.Where the conditions set out in points (a) and (b) of paragraph 1 are no longer met, trading venues shall continue to publish the weekly reports for a period of three months. The obligation to publish the weekly report no longer applies where the conditions set out in points (a) and (b) of paragraph 1 have not been met continuously upon expiry of that period.

Textual Amendments

CHAPTER VIU.K.DATA PROVISION OBLIGATIONS FOR DATA REPORTING SERVICE PROVIDERS

F298Article 84U.K.Obligation to provide market data on a reasonable commercial basis F297...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F298Regulation revoked (5.4.2024 for the revocation of Arts. 84-89) by Financial Services and Markets Act 2023 (c. 29), s. 86(3), Sch. 1 Pt. 3 (with s. 1(4)); S.I. 2023/1382, reg. 4(d)(i)

F298Article 85U.K.Provision of market data on the basis of cost F299...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F298Regulation revoked (5.4.2024 for the revocation of Arts. 84-89) by Financial Services and Markets Act 2023 (c. 29), s. 86(3), Sch. 1 Pt. 3 (with s. 1(4)); S.I. 2023/1382, reg. 4(d)(i)

F298Article 86U.K.Obligation to provide market data on a non-discriminatory basis F300...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F298Regulation revoked (5.4.2024 for the revocation of Arts. 84-89) by Financial Services and Markets Act 2023 (c. 29), s. 86(3), Sch. 1 Pt. 3 (with s. 1(4)); S.I. 2023/1382, reg. 4(d)(i)

F298Article 87U.K.Per user fees F301...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F298Regulation revoked (5.4.2024 for the revocation of Arts. 84-89) by Financial Services and Markets Act 2023 (c. 29), s. 86(3), Sch. 1 Pt. 3 (with s. 1(4)); S.I. 2023/1382, reg. 4(d)(i)

F298Article 88U.K.Unbundling and disaggregating market data F302...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F298Regulation revoked (5.4.2024 for the revocation of Arts. 84-89) by Financial Services and Markets Act 2023 (c. 29), s. 86(3), Sch. 1 Pt. 3 (with s. 1(4)); S.I. 2023/1382, reg. 4(d)(i)

F298Article 89U.K.Transparency obligation F303...

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F298Regulation revoked (5.4.2024 for the revocation of Arts. 84-89) by Financial Services and Markets Act 2023 (c. 29), s. 86(3), Sch. 1 Pt. 3 (with s. 1(4)); S.I. 2023/1382, reg. 4(d)(i)

CHAPTER VIIU.K. COMPETENT AUTHORITIES AND FINAL PROVISIONS

F304Article 90U.K.Determination of the substantial importance of the operations of a trading venue in a host Member State(Article 79(2) of Directive 2014/65/EU)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

CHAPTER VIIIU.K. FINAL PROVISIONS

Article 91U.K.Entry into force and application

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

[F305It shall apply from 3 January 2018 .]

Textual Amendments

F306. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F306Words in Signature omitted (31.12.2020) by virtue of The Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1403), regs. 1(3), 55(2) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

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