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The Financial Conduct Authority (FCA) has launched a significant consultation aimed at reshaping how investment firms in the UK are regulated. This move follows the Treasury’s decision to transfer parts of the MiFID Organisational Regulation (MiFID Org Reg) into the FCA’s rulebook. But what does this mean in practice, and how could it impact firms operating in the UK?
Why the FCAIs Reviewing the Rules
The MiFID Org Reg, originally part of EU law, sets out vital conduct and operational requirements for investment firms, including credit institutions and fund managers. With the UK’s departure from the EU, there’s an opportunity to reframe these rules within a domestic context. The Treasury’s decision to repeal elements of the MiFID Org Reg and transfer others to the FCA’s Handbook is central to this effort.
The FCA’s goal is clear: maintain continuity while exploring opportunities to simplify and tailor the rules. This approach aims to support market stability, reduce firms' compliance costs, and boost the competitiveness of the UK’s financial services sector.
What’s In The Consultation?
The consultation outlines proposals to transfer the existing MiFID Org Reg requirements into the FCA’s Handbook without changing the substance of the rules. The goal is to provide firms with regulatory stability during this transition. However, the FCA has also opened the door for feedback on broader reform.
A key discussion point is whether the current rules, derived from MiFID II, can be better aligned with the needs of UK-authorised firms and their clients. This includes considering adjustments for firms operating under Article 3 exemptions and refining client categorisation rules to enhance their effectiveness.
Additionally,the FCA is seeking input on whether rules should be streamlined, particularlyin areas where the Consumer Duty does not apply. This signals a potential shifttoward a more tailored regulatory framework that reflects the diversity offirms and client relationships in the UK market.
Who Will BeAffected?
The proposedchanges are relevant to a broad range of firms, including:
- MiFID investment firms, including banks and portfolio management firms.
- Article 3 firms operating under MiFID exemptions.
- Third-country firms and UCITS managers.
- Small UK Alternative Investment Fund Managers (AIFMs) and recognised investment exchanges.
Firms across these categories should closely review the consultation to understand its implications and provide input on how the rules can be improved to better suit their operational needs.
What’s Next?
The consultation is open for responses until 28th February 2025, with additional feedback on specific reform discussions (outlined in Chapter 4 of the consultation paper) accepted until 28th March 2025. Firms can submit their responses via the FCA’s online portal or email.
The Prudential Regulation Authority (PRA) will separately consult on restating provisions relevant to prudential regulation, while the Treasury will publish a draft statutory instrument outlining its approach to the remaining non-firm-facing elements of the MiFID Org Reg.
After considering feedback, the FCA plans to release a policy statement detailing its final approach once the Treasury has laid its statutory instrument before Parliament.
What This Means for Firms
The FCA’s initiative represents a chance for firms to shape the future of the UK’s regulatory framework. By transferring the MiFID Org Reg into the FCA rulebook, the regulator aims to strike a balance between continuity and modernisation.
For firms, this transition presents both challenges and opportunities. While the immediate focus is on ensuring compliance with the transferred rules, the consultation’s broader reform discussions offer a platform to advocate for a more streamlined and proportionate regulatory environment.
Engaging with this process will be critical for firms that want their voices heard and their operational realities considered in shaping a more competitive and flexible regulatory framework for the UK’s financial services industry.