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Legal Shorts 07.07.17 including MiFID II: FCA final policy statement and MiFID II: ESMA opinion on transitional transparency calculations

Published: 07 Jul 2017

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Welcome to Legal Shorts, a short briefing on some of the week’s developments in the financial services industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

Claire Cummings

020 7585 1406



MiFID II: FCA final policy statement  

The FCA has published its second and final policy statement (PS17/14) and sixth consultation paper (CP17/190) on MiFID II. The policy statement sets out the FCA’s final rules in areas including conduct of business, client assets, research, taping for corporate finance and discretionary investment managers, local authorities and client categorisation and inducements. The consultation paper proposes fees for recognised investment exchanges (RIEs) operating MTFs or organised trading venues (OTFs), which is part of the requirement in the legislation for them to join the Financial Services Compensation Scheme. Comments on the paper are invited by 7 September 2017. The FCA has also finalised the rules it published in near final form in its first policy statement on MiFID II implementation.

MiFID II: ESMA opinion on transitional transparency calculations  

ESMA has published an opinion providing interim transparency calculations for non-equity instruments in relation to the implementation of MiFID II. MiFID II introduces transparency requirements for bonds, structured finance products, emission allowances and derivatives that enable competent authorities to waive the obligation for market operators and investment firms, which operate a trading venue, to make public pre-trade information for non-equity instruments. ESMA’s opinion sets out a list of asset classes, as defined in MiFIR, and provides hyperlinks to data files containing the outcomes of the transitional transparency calculations for all non-equity instruments that have been classified as liquid. The interim calculations for bonds will be published in August 2017.

MiFID II: ESMA opinion on calculating market size of ancillary activity  

ESMA has also published an opinion to help market participants assess whether their commodity derivatives activities can be considered as ancillary to their main business. Under MiFID II market participants are required to measure their own activity against total market sizes in commodity derivatives. Those market participants exceeding a certain market share are required to apply for authorisation as an investment firm. The aim of the opinion is to help market participants perform the ancillary activity test in MiFID II in the absence of publicly available data for commodity derivatives and emission allowances and sets out the methodology applied and the way market participants can use the data to calculate their market share.

EMIR: EC adopts Regulation on access to data  

The European Commission has adopted an amending Delegated Regulation relating to RTS specifying the data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing data under EMIR. The Commission has amended the original Delegated Regulation to reflect recent developments and experience gained in the area of trade reporting and access to data. Specifically, the amendments set out: (i) common provisions for the operational standards for aggregation and comparison of data, including common output formats; and (ii) common provisions for the operational standards for access to data, including data exchange procedures between trade repositories and competent authorities.

FCA publishes findings on CFD products  

The FCA has published the findings of its review of appropriateness assessments for sales of CFD products. The review found that the following key areas of concern remain: (i) inadequate assessments of prospective clients' knowledge; (ii) insufficient account of clients' previous transactional experience; (iii) inadequate risk warnings to prospective clients who fail appropriateness assessments; (iv) failure to evaluate whether failed applicants should be allowed to make CFD transactions; and (v) poor oversight, weak controls and inadequate management information. In the light of its findings, the FCA continues to have serious concerns about the distribution of CFD products to retail clients. The FCA encourages firms to assess their systems and practices in view of pending obligations under MiFID II relating to enhanced product governance requirements.

ESMA publishes statement on CFDs and binary options  

ESMA has published a statement providing an update on its work in relation to the sale of CFDs, binary options, rolling spot FX and other speculative products to retail investors. ESMA has been concerned about the provision of speculative products to retail investors for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area. To address its concerns that its supervisory convergence tools may not be effective enough, ESMA is considering the possible use of its product intervention powers, including leverage limits, guaranteed limits on client losses, and/or restrictions on the marketing and distribution of CFDs, rolling spot forex and binary options.

FSB reports on progress on OTC reforms  

The Financial Stability Board has published three reports setting out progress and effectiveness of reforms to OTC derivatives markets, namely (i) a review of OTC derivatives market reforms: effectiveness and broader effects of the reforms; (ii) FSB members’ plans to address legal barriers to reporting and accessing OTC derivatives trade data: progress report; and (iii) OTC Derivatives Market Reforms: twelfth progress report on implementation. In an accompanying press release, the FSB stated that it will use its new post-implementation evaluation framework to assess the interaction of the reforms on incentives to centrally clear OTC derivatives and will publish the results from this work in late 2018.

FSB report on G20 financial regulatory reforms 

The FSB has also published a report on the implementation and effects of the G20 financial regulatory reforms, together with a related letter from FSB Chair, Mark Carney, which sets out four main points, including: (i) the G20 reforms are building a safer, simpler and fairer financial system, but there is some unfinished business relating to a few key reforms; and (ii) the FSB will continue to scan the horizon to identify, assess and address new and emerging risks to financial stability, such as FinTech and cyber risk. The report provides further information on these points and identifies three areas where authorities need to remain vigilant, namely maintaining an open and integrated global financial system, market liquidity and the effects of the reforms on emerging markets and developing economies. The report has been published ahead of the G20 summit in Hamburg that will be held on 7 and 8 July 2017.

EC publishes money laundering risks affecting cross-border activity 

The European Commission has published a report on the assessment of the risks of money laundering and terrorist finance affecting the internal market and cross-border activity. The report identified existing risks, including: (i) forty products or services that are considered potentially vulnerable to ML/TF risks affecting the internal market, including the financial sector, trust and company services providers, tax advisors, auditors, external accountants, notaries and other independent legal professionals; and (ii) a number of vulnerabilities common to all sectors, including identification and access to beneficial ownership information, supervision within the EU internal market, insufficient resources, risk-awareness and know-how to implement AML/CFT rules and new risks emerging from FinTech. The European Commission makes a number of recommendations in the report.

Benchmarks Regulation  

The FCA has published an occasional paper on benchmark regulation and market quality. With effect from 1 April 2015, the UK's regulated benchmark regime was expanded to include an additional seven financial benchmarks, including the ICE Swap Rate (formerly ISDAFIX). The paper focuses on: (i) the transition from the panel-based benchmark assessment under the ISDAFIX regime to the market-based assessment under the ICE Swap Rate regime; and (ii) the simultaneous start of supervision by the FCA. Overall, the findings are that the transition has had a neutral to positive effect on the representativeness of the benchmark and that the effects of regulation, as measured in the study, are positive. In the meantime, ESMA has published a new set of Q&As relating to the Benchmarks Regulation. The first two answers included in the Q&As relate to the transitional provisions under the Benchmarks Regulation and clarify which benchmarks supervised entities in the EU will be allowed to use after 1 January 2018.

Update on adoption of SONIA as preferred RFR

The Bank of England working group on sterling risk-free reference rates (RFRs) has published a paper on potential approaches to broader adoption in sterling markets of SONIA. The working group has already recommended SONIA as its preferred RFR for use in sterling derivatives and other financial contracts and its focus has now moved to considering the broader adoption of SONIA in sterling markets. The white paper sets out the working group’s early thinking on adoption of SONIA as an alternative to LIBOR and invites engagement from current and potential users of SONIA in the adoption process. Comments are invited by 29 September 2017.


Tel: + 44 20 7585 1406

Mob: + 44 7734 057 327


7 July 2017

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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