However, particularly in relation to the Conduct of Business Sourcebook (Cobs), the FCA has in the main divided each chapter into a main chapter and a chapter for MiFID firms. These latter chapters usually, but not always, apply also to article 3 firms – but firms need to check in each case which rules they must follow.
Among the key rules that are expected to treat article 3 firms in the same way as MiFID firms are those on:
• Client categorisation, agreements and disclosure requirements.
• Inducements, including adviser charging.
• Independence and suitability.
• Product governance (insofar as firms distribute products which are MiFID II financial instruments).
• Knowledge and competence.
Rules where the FCA is planning to apply some discretion include:
• Recording of telephone conversations and electronic communications (taping): the FCA's original proposal was to apply a taping regime to article 3 firms but, in an update at the end of March, the FCA indicated it would allow retail financial advisers to comply with the requirement by either taping all relevant phone calls or taking written notes of them. This is likely to be of critical importance to IFAs.
• Appropriateness: the FCA proposes to continue to apply the existing rules to article 3 firms.
• Systems and controls rules: many of these will apply as guidance, rather than rules, but certain key requirements, such as those on conflicts of interest, will apply as a rule.
The Brexit effect
Does Brexit matter? Actually, no, it does not. For one thing, if nothing else about Brexit has been clear, the government and regulators have been adamant that, until the moment the UK leaves the EU, it is a member and as such will comply with all relevant laws.
As a jurisdiction that has traditionally implemented EU measures on time, it has always been the plan to implement MiFID II on time and for firms operating in the UK to be compliant by the deadline.
Whatever happens with the negotiations, the UK will still be a member of the EU on January 3, 2018, so firms must comply with the changes to UK laws and regulations. So there is no time to waste.
What should firms be doing?
All IFAs, whether they are article 3 firms or MiFID investment firms, should by now have reviewed the proposed changes to FCA rules and carried out a regulated activity group (Rag) analysis to assess where their business is most impacted.
They should by now have a plan and timetable for making appropriate changes, including to allow enough time to make all appropriate notifications to clients and have MiFID II-compliance customer documentation in place by January 3, 2018.
Questions appear on the last page of this article.