ESMA had a busy period in the run up to Christmas with the publication of both its 645 page MiFID II Consultation Paper (2014/1570) on 19 December (together with a cost benefit analysis (CBA) and draft technical standards (TS) which provide an additional 978 pages) and its 446 page Final Report on technical advice to the European Commission.

Like the current MiFID, MiFID II actually consists of both a Directive (MiFiD 2014/65/EU) and a Regulation (MiFIR 600/2014), both of which require supporting technical standards to be developed by ESMA – hence the above flurry.

MiFID II will apply from 3 January 2017 but before then we can expect consultation papers from both HM Treasury (in respect of the necessary changes to UK legislation) and the FCA (Handbook changes). As with previous Directives and Regulations, Complyport will be working with its clients to ensure that they will be fully compliant with MiFID II.

(NB: MiFID II implementation subsequently delayed to 3 January 2018)

Some areas of MiFID II worth highlighting include:

  • the recording of telephone conversations etc. will need to be kept for at least 5 years and possibly up to 7 years – COBS 11.8.10 currently requires at least 6 months. It should be noted that the current recording requirements in COBS 11.8 stem from an FCA initiative and not MiFID.  The discretionary investment manager exemption (COBS 11.8.6) is not reflected in MiFID II (it refers to the recording of communications relating to the reception, transmission and execution of client orders or in the provision of client order services that relate to those activities) (MiFID Article 16(7)).
  • the need for transaction reporting (SUP 17) currently depends upon whether the (or if an OTC derivative whether its value is dependent upon an) instrument is admitted to trading on a regulated or prescribed market.  MiFID II extends transaction reporting to instruments admitted to trading on a trading venue which has a broader definition  (MiFIR Article 26 & MiFID Article 4(1)(24)).
  • local public authorities’ and ‘municipalities’, which may have slipped within the definition of a ‘per se’ professional client will have to pass an ‘elective’ professional test (although Member States will be allowed to adopt specific criteria to assess the expertise and knowledge of such entities) failing which they will have to be classified as retail (MiFID Annex II & Recital 104).

ESMA will consider all comments (which must be submitted in accordance with the instructions within the Consultation Paper) received by 2 March 2015.