RegulationApr 16 2014

Firms urged to revisit EU regulation compliance

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Firms must revisit their compliance arrangements in light of the European Parliament’s expected ratification of the Markets in Financial Instruments Directive, Jonathan Herbst has warned.

Speaking ahead of an expected approval of draft legislation by MEPs on 15 April, which would see the adoption of the second iteration of the directive, the head of financial services regulation at global law firm Norton Rose Fulbright said firms should reacquaint themselves with rules and exemptions.

MiFID II introduces enhanced conduct of business requirements on financial services firms across Europe, including how advisers define their advice, and how providers reveal hidden costs and underlying fees.

The 482-page document applies to advisers, fund managers, private client wealth managers, platforms and providers, and introduces tougher regulations for the trading of securities and derivatives, commodities and high-frequency trading.

Mr Herbst added that the regulations would have “far-reaching consequences” for EU investment firms and their overseas competitors seeking to do business in Europe, adding: “MiFID II is one of the most important pieces of the post-crisis regulatory reform puzzle, and no one should underestimate its importance.

“Not only are there new market requirements, including those relating to position limits, algorithmic trading and transparency but there are also new conduct of business requirements that add up to significant change for firms.

“It may prompt firms to consider their group structure particularly in light of the changes to existing exemptions and new third-country requirements, and firms relying on exemptions should revisit and update their analysis sooner rather than later.”

In a speech last October, FCA chief executive Martin Wheatley said the City regulator needed to continue engaging at European level regarding MiFID II’s scope in the UK.

The FCA did not comment further ahead of the vote.

Banking union adopted

Earlier, MEPs voted to adopt legislation as part of a move to create a European banking union.

German MEP Sven Giegold called the legislation a “major step forward” in dealing with the problems of the financial sector in a coherent European manner, but expressed regret that many of the core provisions of the scheme would be founded in an intergovernmental agreement, separate from EU law.

Adviser View

Phil Cross, principal of Kent-based Direct Financial Planning, said: “We mainly deal with UK-resident clients, so the extent of EU permissions we have looked into is passporting. As an appointed representative of Tenet Connect, I would hope that the network would keep me informed of any additional regulatory requirements, and it hasn’t regarding MiFID II.”