MiFID II – Now the Talking Stops
With the publication in the past quarter of FCA’s two policy statements on MiFID II (PS 17-05 and PS 17-14) firms have the clearest road map into the January 2018 implementation as they are likely to get. There are residual consultations and issues, but these should not stop firms from progressing their own plans.
A number of priorities stand out:
Firms who previously relied on a MiFID exemption which is due to be phased out, or are carrying out an activity newly regulated by MiFID II, should already be speaking to FCA regarding a potential variation to their permission;
Firms subject to MiFID transaction reporting requirements have from now until implementation to obtain Legal Entity Identifiers for their non- personal clients;
Other personal data may be needed from underlying clients – county of birth, residence, taxation – not necessarily for MiFID reasons, but to satisfy other transaction reporting requirements.
Fulcrum Compliance will be working with clients through 2017 to ensure that clients are well placed for the implementation. Our monitoring programmes will be updated to ensure consistency with relevant MiFID II requirements, allowing us to advise clients on any changes to procedures necessary.
A Senior Moment…
Those still looking for some racy holiday reading need look no further. Published this month, FCA’s long-awaited consultation paper (CP 17-25) on the extension of the Senior Managers’ Regime may not rank with anything in Richard and Judy’s Book Club, but it is still required reading.
As promised, there is some differentiation in implementation between firms based on size and function. Most readers of this Newsletter will fall into the middle “core” category.
We have consistency advised clients to have job descriptions in place and to document recruitment procedures. These, and other processes, form the central planks of FCA’s proposals.
We remain of the view that this home-grown initiative will be at the heart of FCA’s agenda for 2017/18, perhaps more so than MiFID II or indeed any other EU-originated development. Firms will be aware that most of the financial regulation to which they are subject will be subject to Parliament’s Brexit repeal process, with all its uncertainties. Our view is that FCA’s supervisory and enforcement priorities will therefore be more focused on the relatively static target of SMCR.
(More) PEP Talk…
In our March Newsletter we reported that FCA’s March Guidance Consultation (GC 17-02) on PEP identification provided some welcome relief from excessive worrying about who should and should not be caught by the PEP definition.
In the guidance FCA re-iterated that a client will only normally be considered a PEP when they meet the formal definition of carrying out a “prominent public function” and excluding “middle ranking and more junior official[s]”. FCA went out of its way to exclude from the definition those without “executive decision- making responsibilities (such as a government MP with no ministerial brief or an opposition MP)”. Which left us in the then correct (but possibly surprising) position that The Rt. Hon Jeremy Corbyn MP is not to be classified as a politically exposed person and ex-prime minister and current private citizen David Cameron is.
However with the publication of its final guidance (FG 17-06) this month, FCA has stepped back from that position, stating that members of parliament and members of the governing bodies of political parties are automatically PEPs. However it doesn’t end there – FCA then “expect firms to take a differentiated approach that considers the risks an individual PEP poses” based in part on an assessment of that public function
which they hold. Thus “a PEP may pose a lower risk if they…do not have executive decision-making responsibilities (e.g. an opposition MP or an MP of the party in government but with no ministerial office)”.
Which brings us back to where we started from, but with the additional complication for firms that not only do they have to identify PEPs in the first place, they then have to carry out a separate risk assessment on them. This may have been intuitive and implicit in firms’ thinking and processes, but firms with exposure to these clients will need to revise their take-on processes to ensure an explicit reference to their risk ranking of the PEP in question.