Welcome back… to what promises to be the most challenging two year period that the financial services sector in general and the compliance profession in particular has had to face for a long time.
The impact of Brexit continues to reverberate around the UK and EU. FCA pointed out on the morning after the referendum that the result changed nothing. All relevant EU regulation remained applicable. Firms must “continue with implementation plans for legislation that is still to come into effect.”
This is the correct formal legal position – we´re still members and must behave as such. And it also seems the sensible option, given that at that time we leave we´d like to be seen as an “equivalent” regime in order to take advantage of the access granted by the “equivalent third country” regime.
All that is now coloured by the Prime Minister´s speech of 17 January, in which she stated that the UK would leave the single market and would in any event prefer to have greater control over borders rather than be members.
So we´re now looking at the very real prospect of having to implement all forthcoming EU legislation throughout the post-Article 50 notification period, only for that legislation to be repealed as the “Great Repeal Bill” makes its passage.
Brexit supporters may point to this as a release from the EU regulatory burden currently placed on the industry. But as we have written elsewhere, FCA have shown no lack of appetite for imposing their own regulations, independent of any EU imperative. Any net regulatory release remains to be proven.
So the trick to surviving the next two years – and longer – is to implement in a proportionate manner as allowed by the rules so that in the event that a particular regulation or directive does not find its way into UK law, you´ve not created something you can´t live with or adapt further.
In the (MiFID II) meantime…
The MiFID II taping provisions are minimum harmonizing measures – this allows FCA the opportunity to extend ⟨or rather, “gold plate”⟩ the recording requirements.
FCA has stated in CP 16-29 that it will apply the requirements to firms previously outside scope – this will mean that corporate finance firms and financial advisers will be caught by these provisions. The provision which previously allowed fund managers to rely on records held by executing brokers is to be removed.
They will need to have a written policy in place, to have in place proportionate monitoring, to ensure that all relevant calls are captured in the system and keep those records for five years rather than the current six months.
Are you Ready to be PRODded?
The current regime on product governance contained in RPPD applies to the providers and distributors of retail structured products.
However the new MiIFID II inspired PROD sourcebook will apply to all MiFID products, not just retail structured products.
In theory this would require all MiFID firms to carry out stress tests, scenario analysis, an analysis of target markets and more besides, across all of its MiFID products.
Following form our comments above, a proportionate application of these requirements is likely to be the only way to implement these rules without creating the infrastructure of a product manufacturer in a non-manufacturing firm.