Edit Profile

Juhi Banu

18 September 2017


FCA updates new MiFID II regulatory obligations


Authorized firms, and certain firms exempt from MiFID II, must notify the FCA if they are providing DEA or undertaking algorithmic trading under MiFID II. Here, FCA updates new MiFID II regulatory obligations.

18 September, AtoZForex - The long-awaited MiFID II is set to take effect on January 3. Ahead of this date, the UK’s Financial Conduct Authority (FCA) continues with the release of MiFID II updates. In the latest report the need for proprietary traders is highlighted. Along for those providing them with market access to possibly require authorization under MiFID II.

With less than four months until MiFID II comes into effect, a number of firms that are already authorized may require a further round of authorizations. More specifically, this may include Variation of Permission (VoP) to carry out activities starting in 2018. The latest directive from the FCA follows on the heels of a previous call to submit and complete applications for VoP and relevant authorizations by July 3. Thus far, the process has progressed rather smoothly.

With the FCA continuing to receive applications from a larger number of firms seeking to operate a trading venue. Or become a Data Reporting Services Provider (DRSP). The EU reforms Mifid II are poised to transform Europe’s financial industry.

FCA updates new MiFID II regulatory obligations for DEA usage

However, under MiFID II, proprietary traders may need to procure additional authorization. In particular, this entails venues that operate as an unregulated proprietary trader. Who uses a form of direct electronic access (DEA) that is provided by a regulated firm to access trading venues. Such groups may require additional authorization from the implementation of MiFID II this January. Also, they are instructed to consult the FCA’s application and notification user guide and Handbook.

Furthermore, firms providing clients with direct electronic access to trading venues will have an obligation under MiFID II to carry out due diligence on prospective DEA clients.

The FCA is therefore advising financial groups to work closely and in tandem with their respective client base. In order to ensure they are aware of the potential need to be authorized and be authorized in a timely manner. The EU’s ambitious regulatory reforms, known as Mifid II, are poised to transform Europe’s financial industry.

How will Mifid II affect investment decisions?

One of the most high-profile aspects of the legislation involves how asset managers pay for the research they use to make investment decisions.

It is a bullet to what regulators saw as a conflict of interest at the heart of trading. That hurts fund managers’ clients: pension funds, ordinary savers and retail investors. Until now, asset managers received research, including written reports and phone calls with analysts, for free. Although the cost of this service was built into trading fees, which are usually paid by fund managers’ clients.

For the first time, fund managers will have to budget separately for research and trading costs. A move known as unbundling. Longer-term, institutional investors will have more evidence to grill their brokers. That may encourage fund managers to seek alternative ways in the market to execute their trades. Much as they turned to equity dark pools after the original Mifid.

Have your say in the comments section below.

DEA Variation of Permission FCA MiFID ii

Share this story with your network

Read also