Explanatory Note
(This note is not part of the Regulations)
These Regulations implement parts of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (recast) (OJ L173, 12/6/2014 p.349) (“MiFID II”) and Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (OJ L173, 12/06/2014 p.84) (“MiFIR”). MiFID II and MiFIR together replace Directive 2004/39/EC on markets in financial instruments (OJ L145, 30/04/2004 p.1) (“MiFID I”).
Part 1 of these Regulations designates the Financial Conduct Authority (“FCA”), the Prudential Regulation Authority (“PRA”), and the Bank of England as the competent authorities in the United Kingdom responsible for carrying out the duties of competent authorities under Titles I to IV, VI and VII of MiFID and under MiFIR.
Chapter 1 of Part 2 of the Regulations permits investment firms authorised in the United Kingdom to apply to be treated as being exempt from the requirements of MiFID II (subject to certain conditions). This Chapter implements Article 3 of MiFID II, which allows Member States to choose not to apply the Directive to certain types of firm for which they are the home Member State.
Chapter 2 of Part 2 of these Regulations contains provisions concerning the status and supervision of third country (non-EU) firms providing investment services to the United Kingdom. These provisions give effect to Title VIII of MiFIR, which regulates how such firms may access the EU.
Part 3 of these Regulations gives the FCA powers to put in place limits on the size of a position a person can hold in commodity derivatives, sets out the procedure for doing so (including ESMA's role), and gives the FCA powers to supervise the position limits regime. Part 3 also requires persons in the United Kingdom to obey limits set by the competent authorities of other EEA States acting for the purposes of MiFID II. Part 3 implements Article 57 of MiFID II which creates an EU wide regime on position limits.
Part 4 of these Regulations imposes controls relating to algorithmic trading etc. on certain firms and individuals, such as insurance undertakings, that are otherwise exempt from MiFID II. Part 4 implements Article 1.5 MiFID II, which applies Article 17 and 50 MiFID II to individuals and firms that are otherwise exempt from the directive.
Part 5 gives the FCA and the PRA powers to remove a person from the management board of an investment firm, credit institution, or recognised investment exchange, for the purposes of MiFID II in order to implement Article 69.2(u) of MiFID II.
Part 6 confers miscellaneous functions on the FCA for the purposes of MiFID II and MiFIR. These include duties to provide information to ESMA and the competent authorities of other EEA States and to authorise members of the management bodies of recognised investment exchanges to hold additional non-executive directorships (where there is a limitation on the number that can be held). The FCA are also given powers to direct the form in which various applications, reports, and notifications under MiFID II and MiFID are to be made to the FCA.
Part 7 deals with refunds of Gambling Commission fees due to changes resulting from the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017 (S.I. 2017/488) (this Order also implements parts of MiFID II), introduces the Schedule to the Regulations, and imposes a requirement on the Treasury to review these Regulations within five years.
Schedule 1 to these Regulations contains provisions on the administration and enforcement of these Regulations.
Schedules 2 to 5 contain amendments to the Act, secondary legislation made under the Act, other primary legislation, and other secondary legislation. These amendments firstly implement various provisions of MiFID II via changes to existing legislation. The amendments also make consequential changes to primary and secondary legislation resulting from the replacement of MiFID I by MiFID 2 and MiFIR. There are also minor amendments to section 853E(6) of the Companies Act 2006 (c.46) and the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (S.I. 2001/2188) relating to the implementation of Regulation (EU) No 596/2014 of the European Council and of the Parliament of 16 April 2014 on market abuse (OJ No L 173 12/06/2014 p.1).
A transposition note setting out how MiFID II is transposed into UK law and a full impact assessment of the effect this Order will have on the costs of business and the voluntary sector is available from HM Treasury, 1 Horse Guards Road, London SW1A 2HQ or www.gov.uk and is published alongside this Order on www.legislation.gov.uk.