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MiFID II – expect no leniency from FCA firms warned

1 October 2017

Firms must not expect the FCA to show leniency around the MiFID II requirements and should focus on meeting the January deadline, warns BNY Mellon’s Pershing.

With just 100 days until MiFID II comes into force, there is an indication within the industry that some firms will struggle to complete all the requirements in time. However, the possibility of “regulatory forbearance” should not be expected, said Linda Gibson, director of regulatory change and compliance risk at BNY Mellon’s Pershing.

She said: “Some commentators have cited the possibility of regulatory forbearance, where the FCA gives some leeway to firms in complex areas where compliance is more challenging within the original timeframe. This has not been stated or confirmed by the FCA, therefore firms would be unwise to rely on any type of regulatory forbearance.

“Firms must continue to act on areas such as permissions, transaction reporting testing and repapering contracts now to ensure compliance,” Gibson added.

The FCA’s original deadline for applications for a variation in permissions was 3 July 2017, but indications are that a significant number of businesses failed to submit the necessary paperwork in time, and Gibson said any firm unsure of whether it needs new or different permissions must “open dialogue with the FCA immediately.”

She noted: “This is essential to ensure they’re not conducting unauthorised investment business at the start of next year as the FCA have said firms acting without the required permissions may face civil, regulatory and/or criminal consequences. Firms should be aware that the FCA may prioritise applications from firms brought into scope for the first time by MiFID II, so it could take some time for certain submissions to be reviewed.”

Furthermore, Gibson said that the FCA’s transaction reporting test system, which has been live for almost two months, should be seen as an indication that the watchdog expects firms to be advanced with their preparations. As such, firms need to decide whether they will undertake transaction reporting themselves or delegate the function, with the importance of the decision not to be underestimated.

“Firms must evidence their implementation plans and processes at every stage of their compliance journey and know their gaps. Only firms with credible plans can provide well-documented logic to support their assumptions and decisions should any unforeseen obstacles prevent them from achieving full compliance before 3 January 2018,” said Gibson.

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