Understanding the MiFID Organisational Regulation

FCA Proposes Changes to MiFID Organisational Requirements and Operating Conditions

The Financial Conduct Authority (FCA) is consulting on transferring the firm-facing requirements of the Markets in Financial Instruments Directive (MiFID) Organisational Regulation into its Handbook rules. This move aims to provide continuity for firms while enabling future reforms to make rules better suited to UK markets.

Key Changes Proposed

The FCA plans to transfer provisions from the UK version of Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation) into its Handbook. This includes requirements covering:

– Conduct rules and systems controls for market integrity
– Investor protection measures
– Organisational requirements for investment firms
– Client categorisation and communications
– Best execution and order handling
– Record keeping obligations

The regulator aims to maintain the current substance of these requirements while moving them from directly applicable legislation into FCA rules. This will provide firms with continuity while enabling future reforms to better tailor rules to UK markets.

Scope and Application

The changes will affect a broad range of FCA-authorised firms including:

– MiFID investment firms
– Optional exemption firms
– Third country firms
– UCITS managers
– Collective Investment Scheme operators
– Small UK Alternative Investment Fund Managers
– Occupational Pension Scheme firms
– Recognised investment exchanges

The FCA is taking a phased approach, with this initial consultation focused on transferring existing requirements without policy changes. A second phase will look at potential reforms to harmonize and rationalize requirements.

Key Areas for Future Reform

The consultation outlines several areas where the FCA sees potential for future improvements:

– Streamlining requirements for firms conducting similar activities
– Adapting rules for new risks and business models
– Removing duplication from multiple EU directives
– Simplifying core conduct rules
– Rationalizing systems and controls requirements
– Clarifying conflicts of interest management
– Updating outsourcing provisions

The FCA seeks feedback on rules that may be:
– Challenging to navigate or apply
– Imposing disproportionate costs
– Creating difficulties in interaction with other requirements
– Presenting barriers to innovation

Client Categorisation Review

The consultation includes a specific focus on reviewing the client categorisation regime, which hasn’t been substantially updated in 17 years. Key considerations include:

– Whether current category boundaries remain appropriate
– If protections are properly calibrated for each category
– How to handle entities acting on behalf of underlying clients
– The process for clients moving between categories
– Interaction with financial promotion rules

Implementation Timeline

The consultation is open until:
– February 28, 2025 for main proposals
– March 28, 2025 for the discussion chapter on future reforms

The FCA plans to publish final rules in line with the government’s timeline for repealing the existing legislation. Firms should review the proposals and consider:

– Systems and controls changes needed
– Updates required to policies and procedures
– Staff training requirements
– Client documentation reviews
– Record keeping adjustments

Impact Assessment

The FCA does not expect significant cost increases for firms as the proposals maintain existing requirements. Some one-off familiarization costs may arise but these are expected to be minimal.

Longer-term, the proposals aim to:
– Reduce regulatory complexity
– Lower compliance costs
– Enable more efficient supervision
– Support innovation and competition
– Maintain market integrity and consumer protection

Next Steps

Firms should:
– Review consultation paper CP24/24
– Assess operational impact
– Submit feedback by relevant deadlines
– Monitor for policy statement and final rules
– Plan implementation approach
– Consider longer-term opportunities for simplification

The FCA encourages feedback particularly on areas where requirements could be streamlined or improved while maintaining appropriate protections. This will help shape future reforms to create a more effective UK regulatory framework.