PS17/5: Markets in Financial Instruments Directive II implementation – Policy Statement I — FCA — GB

Financial Conduct Authority
Markets in Financial Instruments
Directive II Implementation –
Policy Statement I
Policy Statement PS17/5
31 March 2017

Financial Conduct Authority March 2017 1
Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Abbreviations in this document 3 1 Overview 7 Consultation paper I (15/43) response 12 2 Regulated Markets (RMs) 13 3 Multilateral Trading Facilities (MTFs) 16 4 Organised Trading Facilities (OTFs) 18 5 Systematic Internalisers (SIs) 21 6 Transparency 23 7 Market Data 29 8 Algorithmic and High Frequency Trading 38 (HFT) Requirements 9 Passporting and branches of non-European 42 Economic Area (EEA) firms 10 Principles for businesses (PRIN) 46 Consultation paper II (16/19) response 49 11 Commodity Derivatives 50 12 Supervision 52 13 Prudential Rules 54 14 SYSC – Systems and Controls 56 15 Remuneration 65 16 Whistleblowing 68 17 Fees 70 Consultation paper III (16/29) response 73 18 Taping 74
Annex
List of non-confidential respondents 76
Appendix
Made rules (legal instrument), and 81 near-final rules Contents

PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I In this Policy Statement (PS) we report on most of the main issues arising from Consultation Paper (CP) 15/43 (Markets in Financial Instruments Directive II Implementation – CP I) and CP 16/19 (Markets in Financial Instruments Directive II Implementation – CP II). We also cover some issues from CP 16/29 (Markets in Financial Instruments Directive II Implementation – CP III), and CP 16/43 (Markets in Financial Instruments Directive II Implementation – CP IV). We publish rules on certain aspects of the fees regime and near-final rules for other areas of the Handbook. Please send any comments or queries to:
MiFID Coordination
Markets Policy
Financial Conduct Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Telephone: 020 7066 9758
Email: mifidII@fca.org.uk
We have developed the policy in this policy statement in the context of the existing UK and EU regulatory framework. The Government has made clear that it will continue to implement and apply EU law until the UK has left the EU. We will keep the proposals under review to assess whether any amendments may be required in the event of changes in the UK regulatory framework. All our publications are available to download from www.fca.org.uk. If you would like to receive this paper in an alternative format, please call 020 706 60790 or email publications_graphics@fca.org.uk or write to Editorial and Digital Department, Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. 2 March 2017 Financial Conduct Authority

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Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Abbreviations used in this document APA Approved Publication Arrangement APF Authorised professional firm ARM Approved Reporting Mechanism BoE Bank of England BiPRU Prudential sourcebook for Banks, Building Societies and Investment Firms CA Competent Authority CASS Client Assets Sourcebook CBA Cost benefit analysis COBS Conduct of Business Sourcebook the Commission European Commission CTP Consolidated Tape Provider CRD Capital Requirements Directive CSDR Central Securities Depositories Regulation DEA Direct Electronic Access DEPP Decision Procedure and Penalties Manual DRS Data Reporting Services DRSP Data Reporting Services Provider EEA European Economic Area ECP Eligible Counterparty EG Enforcement Guide EMIR European Markets and Infrastructure Regulation ESA European Supervisory Agencies

4 March 2017 Financial Conduct Authority
PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I ESMA European Securities and Markets Authority EU European Union ETF Exchange Traded Fund FAMR Financial Advice Markets Review FCA Financial Conduct Authority FEMR Fair and Effective Markets Review FSMA Financial Services and Markets Act 2000 GEN General Provisions – FCA Handbook HFT High Frequency Trading IFPRU Prudential sourcebook for Investment Firms ITS Implementing Technical Standard MAR Market Conduct Sourcebook MDP Market Data Processor MiFID Markets in Financial Instruments Directive MiFID II Markets in Financial Instruments Directive II (includes MiFIR, where the context indicates) MiFIR Markets in Financial Instruments Regulation MTF Multilateral Trading Facility NCA National Competent Authority NDA Non-disclosure agreement OTC Over–the-Counter OTF Organised Trading Facility OTR Order to Trade Ratio Parliament European Parliament PERG Perimeter Guidance PRA Prudential Regulation Authority PRIN Principles for Businesses Sourcebook

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Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 RAO Regulated Activities Order REC Recognised Investment Exchange Sourcebook RFA Retail Financial Adviser RIE Recognised Investment Exchange RM Regulated Market RRRs FSMA (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 RTS Regulatory Technical Standard SMS Standard Market Size SSTI Size Specific to the Instrument SUP Supervision Manual SYSC Senior Management Arrangements, Systems and Controls – FCA Handbook TDM Trade Data Monitor the Treasury HM Treasury

6 March 2017 Financial Conduct Authority
PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I

Financial Conduct Authority March 2017 7
Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 1. Overview Introduction
1.1 The Markets in Financial Instruments Directive (MiFID) II is the major piece of EU financial
services legislation governing the buying, selling and organised trading of shares, bonds, units in collective investment schemes, derivatives and certain other financial products. It will apply from 3 January 2018 and the UK has to make the necessary changes its legislation and rules to implement MiFID II by 3 July 2017.
1.2 We have published four consultation papers (CPs) on the implementation of MiFID II1
since
December 2015 and today publish a fifth, CP17/82 alongside this policy statement (PS). We will split our feedback to those CPs between this PS and a second PS at the end of June. Our aim is to provide clarity on certain issues as early as we can, and to make the process of publishing the feedback relating to several hundred pages of rules more manageable.
1.3 This PS predominantly covers issues we consulted on in CP15/43 (where we consulted mostly
on markets issues) and CP16/19 (where the main issues consulted on were systems and controls, client assets and commodity position limits). Of the items in those CPs, we do not cover client assets or perimeter guidance in this PS. However, we do cover a small number of issues we consulted on in CP16/29 and CP16/43 where these are closely related to the material in the previous two CPs, and we also provide an update on our thinking on our proposals for recording of telephone conversations of retail financial advisors exempt from MiFID II, covered in CP16/29. This PS is structured around chapter headings from CP15/43 and CP16/19 but we indicate in the body of relevant chapters when we are covering material from the latter two CPs.
1.4 We make one rules instrument for the purpose of this PS, which is a fees instrument relating to
application fees for new regulated activities arising out of MiFID II implementation. On all other topics in this PS we publish near-final, draft rules. This is because our rules must refer to EU and domestic legislation that has not yet been completed, which will be taken into account when we finalise the rules. To implement MiFID II we expect to finalise all our rules in June. 1 https://www.fca.org.uk/publication/consultation/cp15-43.pdf https://www.fca.org.uk/publication/consultation/cp16-19.pdf https://www.fca.org.uk/publication/consultation/cp16-29.pdf https://www.fca.org.uk/publication/consultation/cp16-43.pdf 2 https://www.fca.org.uk/publications/policy-statements/ps17-5-8-mifid-ii-implementation-proposals-v

8 March 2017 Financial Conduct Authority
PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Who does this policy statement affect?
1.5 This PS affects a wide range of firms that we authorise and recognise, particularly

investment banks
interdealer brokers
firms engaging in algorithmic and high-frequency trading
trading venues including Regulated Markets (RMs), Multilateral Trading Facilities (MTFs),
and prospective Organised Trading Facilities (OTFs)
prospective Data Reporting Services Providers (DRSPs)
investment managers
stockbrokers
investment advisers, and
corporate finance firms and venture capital firms
Is this of interest to consumers?
1.6 Consumers have a clear interest in financial markets that operate fairly and transparently, which
is the rationale for the proposals in this PS. Certain subjects covered, including remuneration of sales staff and the taping of retail financial advisers (RFAs), will be of particular concern to consumers. Our second PS will cover the MiFID II rules of most relevance to consumers, the conduct of business rules and client assets rules. Context
1.7 The regulatory framework that MiFID II introduces will be important in helping us to achieve
our operational objectives relating to consumer protection and market integrity. It introduces important new rules on product governance and remuneration, as well as strengthening the existing framework on best execution, conflicts of interest and inducements. The revised transaction reporting rules will enhance our ability to detect market abuse, and our regime for position management in commodity derivatives markets will be strengthened. A calibrated regime of enhanced pre and post-trade transparency across the full range of secondary trading of financial instruments should help to improve the price formation process.
1.8 We recognise that the implementation of MiFID II will be a significant challenge for firms,
particularly given that important issues concerning the interpretation of legislation are still being resolved. We have undertaken a variety of activities to assist firms with their implementation and to ensure that we support London’s position as a leading international financial centre. As well as publishing detailed CPs on Handbook changes, we meet monthly with a wide range of trade associations, undertake numerous bilateral meetings with firms and trade associations,

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Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 and contribute to the European Securities and Markets Authority’s (ESMA) Level 3 work on guidelines and interpretative Questions and Answers (Q&A).
1.9 In January 2017 we published ‘MiFID II – Application and notifications user guide’3
and opened our authorisation gateway. We have also held a number of authorisation workshops to help firms understand the processes if they need to apply for authorisation under MiFID II or to vary their permission. Firms impacted by the changes to the activities and instruments covered by MiFID II should apply as soon as possible for authorisation or variations of permission, or risk being unable to undertake the business they want from 3 January 2018, when MiFID II takes effect. Summary of feedback and our response
1.10 Many of the measures under MIFID II take direct effect under UK law, meaning that we have
limited or no discretion over many of the issues raised in our consultation papers. Therefore there are few significant differences between the proposals we consulted on and our final rules. However, we appreciated the many technical comments we received in responses to the CPs and have considered them carefully.
1.11 Below we highlight our responses on some of the issues covered in this PS which received the
most feedback.

Multilateral systems – In CP15/43 we consulted on perimeter guidance on a multilateral
system, where we expressed the view that the activities that will be regulated as a trading venue under MiFID II are broader than under MiFID. All of our final perimeter guidance will be in our next PS. On the specific issue of a multilateral system, the issue is being considered by ESMA and we will decide in light of interpretative guidance from ESMA whether to provide our own perimeter guidance.
Post-trade transparency deferrals – In CP15/43 we consulted on allowing trading venues
to use the post-trade deferrals which national competent authorities (NCAs) are allowed to provide under MiFID II. We will allow venues to use the maximum permitted deferrals. NCAs’ approach to the use of deferrals will not be harmonised across the EU because of the national discretion provided in the Markets in Financial Instruments Regulation (MiFIR), but details of the regime in each Member State will be published by ESMA.
Transaction reporting and collective portfolio managers and pension funds – In
CP15/43 we proposed that transaction reporting rules would only apply to firms required to transaction report under MiFID II. This would mean removing our current requirement for collective portfolio managers and pension funds to transaction report because we did not think the benefits of requiring them to report transactions on the MiFID II basis would outweigh the costs. This remains our view and we will not require them to report transactions under MiFID II.
Transaction reporting and third parties – Respondents to CP15/43 raised questions
about the use by investment firms of third parties to provide transaction reports to Approved Reporting Mechanisms (ARMs) and the use of ARMs by trading venues. This led to us proposing some guidance on these issues in CP16/43 which was well received and which will be included in in our final rules. We also provide guidance that investment firms 3 https://www.fca.org.uk/publication/documents/mifid-ii-application-notification-guide.pdf

10 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I providing transaction reports to us directly can use third parties to assist them but must submit the reports to us themselves.
1.12 There are three other issues that it is important to highlight in relation to this PS.

Handbook guides – In CP15/43 and CP16/19 we published Handbook guides to the
implementation of MiFID II covering the markets provisions and its systems and controls requirements. These were well received by respondents who thought they were useful in understanding how MiFID II had been implemented in the UK. We will therefore go ahead with these guides when we make the rules in the second PS. The main suggestions we received for improving the guides were to clarify their status and include a correlation table showing how and where MiFID is implemented in UK legislation, including through FCA rules. We will clarify the status of the guides as guidance, and in due course provide a link to the eventual UK MiFID II transposition table.
Taping – In CP16/29 we consulted on rules regarding the recording of telephone
conversations and electronic communications (‘taping’). As well as implementation of the specific MiFID II requirements we proposed requiring Article 34 RFAs to tape. We will include our taping rules in our June PS, but in order to provide early clarity to Article 3 RFAs we set out how our thinking on this issue has developed in this PS. In light of the feedback received we intend to amend our approach such that Article 3 RFAs are required either to tape all relevant conversations or to keep a contemporaneous note of all relevant conversations. We are also considering the feedback we received on other aspects of our taping proposals.
Asset management market study – In November 2016 we published the interim
report of our asset management market study. This identified several ways in which asset management services and products could work better for retail and institutional investors. It provisionally proposed a package of remedies to address the issues we had found. The remedies have links to issues covered in MiFID II and the Packaged Retail and Insurancebased Investment Products Regulation (PRIIPs). We will ensure the final package of remedies is consistent with, and builds upon, this legislation, bearing the interactions in mind as we finalise our rules for the implementation of MiFID II both here and in our second PS in June. Equality and diversity considerations
1.13 We have considered the equality and diversity issues that may arise from the proposals in this
PS.
1.14 Overall, we do not consider that the proposals in this PS adversely impact any of the groups
with protected characteristics i.e. age, disability, sex, marriage or civil partnership, pregnancy and maternity, race, religion and belief, sexual orientation and gender reassignment. 4 Article 3 allows Member States to exempt from authorisation under MiFID II certain firms providing investment advice and/ or receiving and transmitting orders. These firms have to be authorised at the national level and subject to ‘at least analogous’ requirements to a list of the authorisation, organisational and conduct requirements in MiFID II.

Financial Conduct Authority March 2017 11 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Next steps What do you need to do next?
1.15 Firms need to continue with their preparations for the application of MiFID II on 3 January
2018. As noted above, it is particularly important that if firms need to make applications for
authorisation or variation of permission linked to the changes in MiFID II that they do so as soon as possible. Firms also need to respond to our fifth CP on MiFID II implementation which is being published at the same time as this PS. What will we do?
1.16 We will publish a second PS on MiFID II implementation at the end of June at which point we
will make all of our final rules. We will continue to talk to firms and trade associations about the implementation of MiFID II throughout this year to ensure that implementation goes as smoothly as possible.

12 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Consultation paper I (15/43) response

Financial Conduct Authority March 2017 13 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 2. Regulated Markets (RMs) Introduction
2.1 This chapter is relevant for the operators of UK Regulated Markets (RMs), Recognised Investment
Exchanges (RIEs). It may also be of interest to direct and indirect users of RMs such as investment banks, interdealer brokers, high frequency traders and investment managers. Changes to REC
2.2 In CP 15/43 we set out our approach and consulted on the amendments necessary to reflect the
changes to FSMA (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 (RRRs). The amendments also took account of MiFIR, and various draft RTS. In the CP we proposed three new sections in REC on the management bodies of RMs, on position management and position reporting for commodity derivatives and on the operation of a DRSP. In addition, we proposed revisions to other parts of REC including to cover changes to the trading processes for MTFs and the introduction of OTFs to deal with the suspension and removal of financial instruments, the new provisions on trade transparency and the new requirements on algorithmic trading.
2.3 Our approach to REC was not to copy into the Handbook all the directly applicable EU
provisions but to include a reference to them and update the Reader’s Guide accordingly. The only exception to this was where we exercise a discretion provided for in the regulation itself.
2.4 In CP15/43 we asked in Q2 and Q3:

Do you agree with our approach outlined above to amend REC to take account of the MiFID
II changes? If not, please give reasons why
Do you foresee any implementation issues with the approach above?
2.5 The majority of respondents supported the approach of providing a reference to – rather
than copying into the Handbook – the directly applicable provisions. However, some of those respondents favoured greater clarity on which provision within a directly applicable regulation is relevant for a REC provision. Others suggested additional signposts to directly applicable regulations should be added to REC. Only a few respondents were in favour of copying out the entirety of the EU directly applicable provisions in REC as we did with MiFID, arguing that the Handbook will be much harder to use with just references.
2.6 In relation to the new section on the management body of a market operator, some respondents
expressed concern about the way Article 45(2) of MiFID II is transposed into REC 2.4A2(b). They argued that the FCA proposed to transpose this in a way that would restrict the number of

14 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I directorships held within the same group or undertakings where the market operator owns a qualifying holding more tightly than was intended by MiFID II.
2.7 Many respondents disagreed how we transposed the provision in Article 48(7) of MiFID II on
direct electronic access (DEA) by members or participants of an RIE. Under the proposed REC 2.5.1(10)(a), only investment firms authorised in accordance with MiFID or credit institutions authorised in accordance with the Capital Requirements Directive (CRD) can provide DEA to clients. It was argued that the comparable provision for MTFs under the Market Conduct Sourcebook (MAR) 5.3A.9, allowed certain non-EEA firms to continue to provide DEA to their clients thereby constituting a competitive disadvantage for RIEs.
2.8 Several respondents expressed concerns about our transposition of Article 48(2) of MiFID II
into REC 2.5.1(4), which requires an RIE to have written agreements in place with all investment firms pursuing a market making strategy on trading venues operated by it. They argued that the scope of the obligation is broader than that resulting from RTS 8 on market making agreements and market making schemes.
2.9 A small number of respondents disagreed with the deletion of REC 2.6.30 in relation to block
trading and other types of specialist transactions such as the exchange of futures for physicals.
2.10 Finally a respondent pointed to the fact that much of REC was set out as guidance as opposed
to directly applicable rules, which they said was at odds with MiFID II’s aims. Our response on changes to REC We believe the approach that we took in CP15/43 to signpost directly applicable EU regulations rather than copying them into the Handbook remains the best way to implement the RM provisions of MiFID II. It avoids obscuring the directly applicable nature of the regulations. When we published CP15/43 we copied the relevant sections of the RRRs as consulted by the Treasury at that time. The Treasury has now published revised draft implementing legislation, which includes changes to the RRRs in relation to the management body of RMs. We have amended REC 2.4A(2)2(b) accordingly. In relation to DEA, REC 2.5.1(10)(a) also reflected the proposed changes to the RRRs by the Treasury at the time of consultation. Now that the Treasury has published revised draft implementing legislation, which changes the RRRs in relation to DEA we have made consequential changes to REC 2.5.1(10)(a), and this is aligned with the revised wording of MAR 5.3A.9 and MAR 5A.5.9 for MTFs and OTFs. This issue is also addressed in Chapter 8. On market making agreements, REC 2.5.1 continues to reflect the proposed changes to the RRRs consulted upon by the Treasury. The RRRs mirror Article 48(2) of MiFID II, the scope of which is specified in RTS 8 which we signpost in REC. Blocks, in the form of large in scale orders and transactions, and exchange of future for physicals, are subject to the directly applicable transparency requirements set in MiFIR and the relevant RTSs. The transparency regime provides for exemptions from pre- and post-trade transparency for those types of transactions.

Financial Conduct Authority March 2017 15 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 The apparent difference in the approach between REC and other parts of the Handbook is due to the distinction made under FSMA between the roles played by the RIEs and other market participants. Although this distinction has narrowed when the MTF category was created by MiFID, and there are now common market-facing regulatory obligations for MTFs in addition to RIEs. Whilst the separate regimes remain, FSMA imposes the RRRs on RIEs, and authorised firms are subject to our Handbook. The difference is that much of REC has been set out as excerpts from the draft new RRRs (rather than rules) and guidance. However, the recognition regime for RIEs will transpose binding requirements equivalent to those for trading venues operated by investment firms, when the Treasury legislation comes into force.

16 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 3. Multilateral Trading Facilities (MTFs) Introduction
3.1 This chapter is relevant for the operators of UK Multilateral Trading Facilities (MTFs). It may
also be of interest to direct and indirect users of MTFs such as investment banks, interdealer brokers, high frequency traders and investment managers. Changes to MTF Requirements
3.2 In CP15/43 we proposed amendments to Chapter 5 of MAR to implement changes introduced
by MiFID II for MTFs, in particular in relation to Articles 18, 19, 31 and 32 of MiFID II. We proposed new sections in MAR 5 on the functioning of an MTF, on suspension and removal of financial instruments and on systems and controls for algorithmic trading. In addition we proposed revisions to other parts of MAR 5 including to cover changes to the trading processes and the new provisions on trade transparency.
3.3 In CP15/43 we asked in Q4:

Do you agree with our approach to implementing the MTF requirements in MAR 5? If not,
please give reasons why
3.4 Respondents generally agreed with our approach, although a small number advocated copying
out the text of the Directive into the Handbook and flagging it as EU material.
3.5 Most respondents supported the proposed guidance in MAR 5.3.1B(G) which clarifies that
an investment firm, with the appropriate permission, can execute client orders against its proprietary capital or engage in matched principal trading outside the MTF it operates. However some of those respondents sought greater clarity on whether an investment firm, when acting as a member and not as the operator of its own MTF would be prohibited from dealing on own account or engaging in matched principal trading. One respondent supported the proposed approach only when executing orders on own account or engaging in matched principal trading does not conflict with the interests of the members of the MTF. Only one respondent did not support the proposed guidance and advocated a broader restriction.
3.6 Some respondents emphasised the importance of the non-discriminatory access requirement as
a supervisory priority, especially on the inter-dealer market and suggested that in enforcing this requirement we should bear in mind our competition objective and said they would welcome further guidance in the Handbook on its interpretation.
3.7 Other respondents sought clarification on MAR 5.3A.3R and suggested that market making
agreements are only required where a market making scheme is mandatory. A couple of

Financial Conduct Authority March 2017 17 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 respondents were in favour of aligning the provision on who is permitted to provide DEA between RIEs and MTFs and suggested an amendment to MAR 5.3A.9. Our response to changes to MTF requirements Consistent with our response for REC (Chapter 2), we think that signposting directly applicable EU regulations rather than copying them out is the best approach to implementing the markets provisions of MiFID II. For restrictions on the use of proprietary capital including matched principal, we will adopt the guidance we proposed. This allows an investment firm, with the appropriate permission, to execute orders against its proprietary capital or to engage in matched principal trading outside the MTF it operates. We believe this is aligned with MiFID II’s intention and is bolstered by the requirement for investment firms to establish appropriate arrangements to identify and prevent the emergence of conflicts of interests between the operation of an MTF, and other investment services of activities. In relation to the provision on market making agreements, consistent again with Chapter 2 of this PS, we note that the signpost to the directly applicable RTS 8 clarifies the scope of the obligation. For the alignment of the provisions on DEA between MTFs and RIEs, the Treasury’s recent implementing legislation changes the RRRs in relation to DEA, resulting in consequential changes to REC 2.5.1(10)(a), to align them more closely to MAR 5.3A.9. This issue is also addressed in Chapter 8.

18 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 4. Organised Trading Facilities (OTFs) Introduction
4.1 Organised Trading Facilities (OTFs) are a new venue type for the trading of bonds, derivatives
and other non-equity instruments. Their introduction into MiFID II is in part linked to G20 reforms to OTC derivatives markets which include requiring in certain circumstances the trading of such instruments to take place on trading venues subject to pre and post-trade transparency requirements. This chapter is relevant for those seeking authorisation as UK OTFs or for RIEs planning to operate an OTF. It may also be of interest to direct users of OTFs such as investment banks, interdealer brokers, high frequency traders and investment managers. Requirements for OTFs
4.2 In CP15/43 we proposed an entirely new section of the Handbook for OTFs, MAR 5A, as the
operation of an OTF is a new investment service or activity. In particular we highlighted some of the key aspects that distinguish an OTF from an MTF. An OTF is required to use discretion when deciding when to place or remove an order and whether or not to match a specific client order with other orders available in the system. The use of discretion by the OTF operator comes with conduct of business obligations, including best execution.
4.3 An investment firm operating an OTF is prohibited from operating an OTF and an SI within the
same entity. An OTF is also not allowed to connect with a SI in a way which enables the orders in an OTF and in an SI to interact. In the CP we provided further guidance on the scope of the prohibition.
4.4 OTFs are subject to different limitations in relation to the use of their proprietary capital. An
OTF can, with client consent, engage in matched principal trading in any financial instrument except derivatives subject to the clearing obligation and can also deal on own account in respect of sovereign bonds for which there is not a liquid market.
4.5 In CP15/43 we asked in Q5:

Do you agree with our proposals on how to implement OTF rules in MAR 5A? If not, please
give reasons why
4.6 Most respondents supported the proposed approach to implement the OTF rules in MAR 5A.
Any concerns tended to be broader comments on our approach to transposition, for example around not copying all EU regulations into the Handbook. Other respondents noted the importance that any Handbook guidance does not deviate from MiFID II and future ESMA guidance. Some respondents suggested that MAR 5A for OTFs and MAR 5 for MTFs should be merged.

Financial Conduct Authority March 2017 19 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
4.7 Some respondents requested clarification of what is meant by discretion in an OTF, and whether
this should be applied at a system level or on a trade-by-trade basis. Others queried whether discretion could co-exist alongside various types of trading protocol, such as electronic trading. Others asked for clarification that discretion does not apply to the non-discriminatory access rules and whether OTFs could restrict access to their venue through their use of discretion.
4.8 Respondents also asked for clarification of whether when arranging trades in non-financial
instruments, wholesale energy contracts that must be physically settled, if the arranging permission of an OTF venue applies. They also asked whether firms’ terms of business could include a general assumption of consent for matched principal trading, rather than requiring client-by-client agreement as per Article 20(2) of MiFID II.
4.9 Others asked for clarity around the criteria for instruments to be traded on a venue. This links
to the definition of multilateral system, which ESMA is considering.
4.10 Some respondents queried the scope of MAR 5A.3.10, which requires that OTFs explain why
they cannot operate as an MTF, RM or SI.
4.11 There was a request that MAR 5A.5.17 (and MAR 5.3A.17) is amended to make clear that the
clock synchronisation requirements only apply to venues, not all firms.
4.12 Finally one respondent asked for clarification on whether an RIE operating an OTF would be
subject to the capital requirements set in CRD.
Our response on requirements for OTFs
As noted in the previous chapter in relation to REC (Chapter 2), we remain of the view that signposting directly applicable EU regulations rather than copying them out is the best approach to implementing the markets provisions of MiFID II. We appreciate that OTFs are a new category of trading venue, and many firms require further clarity and guidance on how OTFs operate, especially in respect of the use of discretion. The FCA will not add further guidance in MAR 5A but will await publication of Level 3 Q&A by ESMA. In the meantime on discretion we refer respondents to Article 20(6) of MiFID II, which requires that OTF operators carry out the execution of orders on a discretionary basis and that an OTF operator may facilitate negotiations between clients so as to bring together two or more potentially compatible trading interest in a transaction. The use of discretion must not undermine the principle of non-discriminatory access, which applies as equally to OTFs as it does to MTFs. The requirement that investment firms and market operators operating an OTF must explain why they cannot operate as an MTF, RM or SI is one which we would expect an OTF operator to make clear when applying to us for authorisation and on an ongoing basis. The key difference between an OTF and an MTF is that an OTF can use discretion. Discretion must be a key and essential component of the operating of the OTF. Where non-MiFID financial instruments are traded on an OTF the operator is not required to comply with MiFID II in respect of those instruments. However, given the trading of non-MiFID financial instruments would take place within

20 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I the same systems as the core service of the OTF of offering to trade financial instruments, participants would expect to receive a similar level of service with equivalent outcomes. Should an OTF wish to offer matched principal trading, consent can be obtained from clients if the OTF makes this clear in its rule book. RIEs operating OTFs are not subject as such to CRD, however they should have regard to the risks they are exposed to as operator of OTFs, in particular those of dealing on own account. We expect RIEs to reflect these risks in their financial resources requirement in accordance with REC 2.3. The clock synchronisation rules apply to trading venues and their members/ participants. MAR 5A does not need amending in this respect as MAR 5A only applies to investment firms and market operators operating OTFs.

Financial Conduct Authority March 2017 21 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 5. Systematic Internalisers (SIs) Introduction
5.1 This chapter is relevant to Systematic Internalisers (SIs), and for those seeking authorisation as
SIs. It may also be of interest to direct users of SIs such as interdealer brokers, high frequency traders and investment managers. Changes to requirements for SIs
5.2 In CP15/43 we proposed amendments to our Handbook in MAR 6 to implement changes
introduced by MiFID II. These involved deleting most of the substantive elements of the SI regime because these are now in a directly applicable EU regulation. We retained and updated the reporting requirement because MiFIR requires us to place an obligation on investment firms in this regard.
5.3 CP15/43 asked in Q6:

Do you agree with our approach to implementing the SI regime in MAR 6? If not, please
give reasons why
5.4 The majority of respondents agreed that as the SI regime is implemented through EU regulations,
it does not need to be replicated in the Handbook.
5.5 Some respondents said that they disagreed with our proposed implementation as they did not
agree with aspects of the policy that they believed to be in the Commission’s draft delegated acts at the time of our consultation.
5.6 A number of respondents also questioned the proposed MAR6.4.1A R, which removes the
requirement for a SI to notify us when it becomes or ceases to be a SI, when dealing above standard market size (SMS) or the size specific to the instrument (SSTI). They felt that without a broader notification requirement it would make other aspects of MiFID II, such as trade reporting, more difficult to implement.
5.7 Some also queried whether MAR 6 applies to UK branches of European Economic Area (EEA)
or non-EEA investment firms.
Our response on requirements for SIs
Our consultation outlined our proposed approach to implementing the SI regime in to the Handbook. It did not consult on any matter relating to the

22 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I MiFID II implementing regulation that sets the thresholds for the SI regime. We do not therefore respond to the points raised about that. MAR 6.4.1 is the rule which requires an SI to notify us when it becomes an SI or ceases to be an SI. The proposed MAR 6.4.1A turned-off this notification requirement where the firm deals above SSTI or SMS. We note that regardless of the size in which the firm trades, if a firm exceeds the relevant trading thresholds, it is an SI. Therefore, whilst when an SI trades above SSTI or SMS the particular obligations in Articles 14 and 18 of MiFIR do not apply, the notification requirement applies when the firm becomes or ceases to be an SI regardless of the size they are trading at or intend to trade at. We have therefore deleted the proposed MAR 6.4.1A, the effect of which is that all SIs must notify us when they become or cease to be an SI, regardless of the size at which they trade. By virtue of Article 35(8) of MiFID II, MAR 6 applies to UK branches of non-EEA investment firms operating an SI. The amendment to GEN that we consulted on in CP15/43 (see Chapter 9 of this PS) will have the effect of applying the SI regime to UK branches of non-EEA firms. The application of MiFID II to EEA firms is dependent on a decision by the EEA joint committee.

Financial Conduct Authority March 2017 23 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 6. Transparency Introduction
6.1 This chapter will be of interest to operators of trading venues, and to direct and indirect users
such as investment banks, interdealer brokers, high frequency traders, stock brokers and derivatives brokers, and investment managers. Waivers from pre-trade transparency
6.2 In CP15/43 we said that it continued to believe that the waivers are important to ensure an
appropriate balance between transparency and liquidity in equities markets and we proposed to grant waivers to RMs and MTFs trading equity and equity-like instruments where the use of the waivers meets the conditions set out in MiFID II.
6.3 In CP15/43 we asked in Q7:

Do you agree that we should be prepared to use our power to grant waivers from pre-trade
transparency in shares, ETFs, and depositary receipts in relation to:
– systems matching orders on the basis of a reference price – systems that formalise negotiated transactions – orders that are large in scale, and – orders held in an order management facility pending disclosure? If not, please give reasons why
6.4 All the respondents agreed with the proposal to grant all the above waivers to operators of
trading venues meeting the relevant requirements in the legislation.
6.5 In CP15/43 we said we supported the use of the waivers to ensure that transparency in nonequity markets, which are often characterised by lower and episodic liquidity, is carefully
calibrated.
6.6 In CP15/43 we asked in Q8:
Do you agree that we should use our power to grant waivers from pre-trade transparency
in bonds, structured finance products, derivatives and emission allowances in relation to:

24 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I – orders that are large in scale – orders held in an order management facility pending disclosure – actionable indications of interest in request-for-quote and voice trading systems, and – derivatives that are not subject to the trading obligation under Article 28 of MiFIR, and other financial instruments for which there is not a liquid market? If not, please give reasons why
6.7 Respondents were strongly in support of us granting all the available waivers to UK trading
venues on the grounds that the waivers provided by MiFIR to non-equity financial instruments would support liquidity on those markets. Some market participants supported greater clarity in the process of applying to us for a waiver from pre-trade transparency.
6.8 Some respondents raised concerns related to waivers that were not directly relevant to our
question about whether we should grant all or some of the waivers from pre-trade transparency for non-equities. Those concerns relate to:

the lack of a waiver for exchange of physicals and packages and the implications of that for
the liquidity of markets
whether we should phase out some of the waivers post-implementation following an
assessment of their impact on markets, especially in relation to cleared derivatives
the short timelines set in MiFIR in respect to the notification process, including the time
necessary for us to assess waivers before notifying ESMA and the other NCAs
the quality of data for the first assessment of liquidity and for determining the value of the
size specific to the financial instrument and the large in scale thresholds Our response on waivers from pre-trade transparency We will grant waivers to RMs and MTFs in respect of equity and equity-like instruments where the use of the waivers meets the conditions set out in MiFIR. We will grant waivers to trading venues in respect of non-equity instruments where the use of the waivers meets the conditions set out in MiFIR. Since the publication of the CP15/43, MiFIR has been amended by the inclusion of a new waiver in relation to package orders including exchange for physicals. We will also grant waivers for packages where the use of the waiver meets the conditions set out in the legislation and the associated RTS, which has yet to be adopted by the Commission. Together with other NCAs and ESMA, we will monitor the use of waivers by market participants and their impact on market efficiency and liquidity. We retain the power to revisit the decision to grant any of the waivers in due course and in accordance with the general process to amend rules. We note that ESMA has decided to carry out transparency calculations, i.e. calculations aimed at establishing the relevant transparency thresholds and determinations,

Financial Conduct Authority March 2017 25 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 in the course of 2017 on the basis of data available to regulators, including data provided by trading venues. Process of applying for pre-trade transparency waivers
6.9 In CP15/43 we asked in Q9:

Do you agree that our sourcebooks should provide more clarity in relation to: the process
of applying for a pre-trade transparency waiver, and information that we deem necessary in order to evaluate an application? If not, please give reasons why
6.10 All respondents supported greater clarity around the process and the timelines to apply for a
waiver from pre-trade transparency. A number of respondents raised questions and offered proposals on how pre-existing waivers, such as waivers granted by us under MiFID, should be dealt with to ensure a smooth transition to MiFID II. Others highlighted the importance of ensuring that waivers are granted on a consistent basis and suggested that information on past waivers be made publicly available by or through us.
6.11 In CP15/43 we asked in Q10:
Should the sourcebooks include templates setting the minimum information content that
trading venues should provide to us when applying for a waiver? If not, please give reasons why
6.12 All respondents supported the introduction of a template in the Handbook setting out the
minimum information content to be provided when applying for a pre-trade transparency waiver. Respondents believed that a template would bring greater certainty and efficiency to the application process. Respondents also suggested that all waivers granted should be made public and that the template should accommodate all the relevant information that trading venues may want to submit and be flexible enough to be used by different trading protocols. Our response on the process of applying for pre-trade transparency waivers In January 2017 we published our ‘MiFID II – Application and notification user guide’ which, among other things, clarifies the process of applying for a pretrade transparency waiver and the relevant timelines. In the guide we said that applicants should send a complete application at least 5 months before the waiver is intended to take effect, which would include the mandatory 4 months period to notify ESMA and other NCAs before the waiver is intended to take effect. In addition ESMA published in December 2016, Q&A on the process and timelines for the assessment of equity and non-equity waivers for the period in advance of the application of MiFIR. ESMA has also published, Q&A on waivers granted under MiFID and how trading venues are expected to bring those waivers into compliance with MiFIR in advance of 3 January 2018. In accordance with the Level 3 ESMA Q&A UK trading venues are not required to re-apply in relation to existing waivers which require only non-substantial modifications to be brought in compliance with MiFIR.

26 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I We will add a template to the Handbook that trading venues are expected to complete to apply for a pre-trade transparency waiver. We published the template on our website (it is available from the ‘publications’ section of our website under ‘forms’) in December 2016. Post-trade transparency deferrals
6.13 In CP15/43 we asked in Q11:

Do you agree that we should be prepared to authorise operators of trading venues and
investment firms to defer the publication of post-trade information in relation to large in scale transactions in shares, ETFs, and depositary receipts executed by investment firms acting in a principal capacity? – If yes, should we provide guidance in the Handbook on the process for applying for deferrals? – If not, please give reasons why
6.14 Respondents supported authorising operators of trading venues and investment firms to defer
the publication of executed transactions in shares, ETFs, and depositary receipts. Respondents also supported greater clarity on the application process. Some respondents called for greater clarity on the process of how deferrals authorised under MiFID would transition to MiFID II.
6.15 In CP15/43 we asked in Q12:
Do you agree that we should authorise operators of trading venues and investment firms to
provide for deferred publication in relation to transactions that are:
– large in scale
– in financial instruments for which there is not a liquid market – above the size specific to the instrument, and – packages If yes, do you agree that we should set up the process for the use of guidance in the Handbook for the application of deferrals? If not, please give reasons why
6.16 Respondents supported our proposal to authorise deferrals to transactions in bonds, structured
finance products, derivatives and emission allowances in accordance with the conditions set in MiFIR. Many respondents also supported harmonisation in the use of deferrals across the EU to avoid complexity and fragmentation of regimes. Some respondents called for clarity on whether firms will need to re-apply on a regular basis following the calculations of the transparency thresholds.

Financial Conduct Authority March 2017 27 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
6.17 In CP15/43 we asked in Q13:

Should we:
– use our powers under Article 11(3) of MiFIR further to calibrate post-trade deferrals in accordance with the above options – require additional information to be made public during the deferral period? and/or, should we:
– permit the omission of the volume, or the aggregation of information, for an extended time period of four weeks? If not, please give reasons why
6.18 All respondents agreed we should consider using our powers under Article 11(3) of MiFIR
to calibrate further post-trade deferrals. No respondent was in favour of requiring additional information, either trade by trade or aggregated, during the deferral period. Respondents argued that the disclosure of some information during the standard deferral period would undermine liquidity provision and ultimately impose additional costs to investors.
6.19 Respondents were in favour of allowing the omission of the volume on a trade by trade basis
at the end of the standard deferral period in accordance with Article 11(3)(b) in MiFIR and 11(1) (b) in RTS 2. The same respondents also supported the aggregation of the information for an indefinite period of time for sovereign debt instruments. No respondent supported the weekly aggregation of the transactions for non-sovereign debt instruments.
6.20 Finally, many respondents argued in favour of harmonisation of the deferral regime across the
EU to limit the regulatory burden and limit the complexity of the regime. Our response on post-trade transparency deferrals We will authorise deferrals of transactions executed in shares, ETFs, and depositary receipts where the use of the deferrals meets the conditions set out in the legislation. We clarified the process for the authorisation of a deferral in our ‘MiFID II – Application and notification user guide’ – see Chapter 12. We will authorise deferrals of transactions executed in bonds, structured finance products, derivatives and emission allowances where the use of the deferrals meets the conditions set out in the legislation. We clarified the process for the authorisation of a deferral in our ‘MiFID II – Application and notification user guide’ – see Chapter 12. For shares the recalculations of the transparency thresholds, such as the large in scale, or the classes of financial instruments for which there is a liquid market, do not require firms to re-apply for authorisation of existing deferrals. Finally, we would point out that harmonisation of the deferral regime is outside the scope of this consultation, and also outside the scope of ESMA’s powers. We will use our powers to calibrate further post-trade deferrals. Where the conditions for a deferral are met in accordance with Article 11(1) of MiFIR we

28 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I will not require the publication of limited or aggregated information during the deferral period. We will also allow the omission of the publication of the volume during the extended time period of deferral set in RTS 2. For sovereign bonds we will allow the aggregation of the publication of several transactions in an aggregated form for an indefinite period of time. We will allow the aggregation of the information of several transactions executed during the course of a week for the extended time period of four weeks.

Financial Conduct Authority March 2017 29 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 7. Market Data Introduction
7.1 This chapter is relevant to persons who are interested in becoming authorised as a DRSP in
the UK. DRSPs include Approved Reporting Mechanisms (ARMs), Approved Publication Arrangements (APAs) and Consolidated Tape Providers (CTPs). It may also be of interest to any operator of a UK trading venue seeking verification of its rights to provide data reporting services.
7.2 The part of the chapter on transaction reporting will be of interest to managers of collective
undertakings and pension funds.
The Data Reporting Services Providers (DRSPs) regime proposed in CP15/43 and CP16/43
7.3 In CP15/43 we proposed the addition of a new chapter (MAR 9) to MAR. It will provide entities
with directions and guidance about how they can apply to become authorised as a DRSP and how to extend, vary or cancel an authorisation. It will also cover matters such as our supervisory approach, and how a DRSP can notify us of important information such as changes to its management body.
7.4 In CP15/43 we asked in Q14:

Do you agree with our approach to DRSPs in MAR 9? If not, please give reasons why
7.5 The responses were generally supportive of our proposals in relation to DRSPs in MAR 9. A
few respondents said that elements of the CP text were incomplete and advised they were therefore not able to answer this question conclusively. This relates to the proposal of the requirement of an annual notification under MAR 9.3.7 for which no reference can be found in RTS 13. Furthermore for notifications under RTS 13, a couple of respondents argued that unless the materiality of such notifications is qualified, this requirement may become unnecessarily burdensome on both DRSPs and us.
7.6 Some respondents suggested making the following amendments to MAR 9.1.2G(4)
“…Approved reporting mechanisms (ARMs) to provide the service of submitting transaction reporting reports on behalf of investment firms…”
7.7 They thought it was inaccurate to state that ARMs transaction report on behalf of investment
firms, as the obligation for completeness and accuracy of the report applies to the investment firm that executes a transaction in a reportable instrument.

30 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I
7.8 Some respondents emphasised the importance of transparency around the formal timeline
for DRSP authorisation. They argued that any inconsistencies in the approach to granting authorisation could result in a commercial disadvantage for some applicants, given the intense competition in the regulatory reporting industry.
7.9 Others commented on the obligations on operators of trading venues in Article 26 (5) of MiFIR
to report transactions to NCAs on behalf of members/participants who are not investment firms or credit institutions. Respondents noted that under these circumstances the trading venue is not providing services to an investment firm in order for it the firm to meet its obligations under
Article 26 of MiFIR’ as per the definition of an ARM. They argued that while the trading venue
in this instance can choose to connect directly to the NCA for the purpose of submitting this data it should also be allowed to outsource this process to a third party, including an ARM. They also noted that under REC 2.2.3-2.2.7 RIEs are expressly permitted to outsource functions subject to the fitness and propriety of the third party who performs them. Two respondents recommended amendments in the Handbook provisions to allow trading venues to outsource transaction reporting obligations under Article 26 of MiFIR through the use of ARMs.
7.10 One respondent said that it is critical for ARMs and their clients to understand technical
specifications from a connectivity, configuration and accuracy & completeness of reporting point of view. The respondent therefore proposed expanding the provision of a non-disclosure agreement (NDA) to allow ARMs to share relevant information included in the technical specification with their clients.
7.11 A respondent recommended that where possible and appropriate CAs should align standards
across MiFID II and EMIR reporting requirements. Another sought clarification around whether service providers that facilitate data reporting but do not act as an originator or end-point, would be required to become DRSPs.
7.12 A respondent sought clarification on whether an entity would need to become authorised as
an ARM if (a) multiple firms within a group route transaction data to an ARM through common infrastructure, (b) the entity in question reports transactions on behalf of other firms within the same group and (c) the submission is made by the receiving firm where the conditions for transmission have been complied with under the Receipt and Transmission of Order (RTO) under RTS 22. In addition, the respondent asked whether the answers to the above questions would be different if the reporting firms chose to connect directly to the NCA.
7.13 A respondent stated that whereas they support sufficient funding for the NCA to carry out its
mandates through setting up connectivity fees, such fees should not constitute an additional ‘tax’ for UK trading venues.
7.14 A potential legislative conflict was highlighted between:

Article 73 of the Central Securities Depositories Regulation (CSDR) which exempts entities
authorised as CSDs carrying out services explicitly listed in Annex A and B (including transaction reporting services such as ARMs) from requiring authorisation and being subject to provisions under the DRS Regulation, and
the proposed Handbook definitions which envisage that entities providing such services are
doing so in accordance with regulation 5 of the DRS Regulations, while being subject to the Handbook.
7.15 In CP16/43 we provided further clarity on our supervisory approach to DRSPs. We proposed
that the annual notification required under MAR 9.3.7 would be an annual review, for which

Financial Conduct Authority March 2017 31 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 RTS 13 forms the framework. We proposed that a DRSP submit the notification within three months of the commencement of its authorisation.
7.16 In CP16/43 we asked in Q12:

Do you agree with our approach that the annual notification required under MAR 9.3.7 will
be an annual review, verified by a member of the management body of the DRSP, which assesses the DRSP’s controls in place for RTS 13? If not, please give reasons why
7.17 In CP16/43 We asked in Q13:
Do you agree with our proposal that RTS 13 should form the framework and scope of the
annual review that should be undertaken by a DRSP prior to verifying its compliance with Title V of MiFID II? If not, please give reasons why
7.18 In CP16/43 we asked in Q14:
Do you agree with our proposal to extend the timeframe in MAR 9.3.7 to submit the
notification in MAR 9 Annex 8D? If not, please give us reasons why
7.19 The majority of the respondents were in favour of our proposals for the annual notification
form.
7.20 One respondent had concerns that a full annual review, as proposed, could be burdensome and
costly for DRSPs to undertake, and for potentially little benefit. They said that it was not clear whether our approach will be mirrored across the EU or adopted by ESMA as best practice, and believed a unilateral obligation on UK DRSPs appeared to be gold plating and could put UK DRSPs at a disadvantage in terms of costs and management time. They suggested that the annual review could identify any changes which may impact their on-going ability to comply with their authorisation conditions, rather than form a detailed annual review of compliance.
7.21 A respondent suggested the anniversary to submit the notification in MAR 9 Annex 8D
notifications, should be amended to the ‘commencement of service’ and not the ‘date of authorisation’. The respondent stated it was not clear to them whether the annual review will be provided as a ‘confirmation of compliance’, or ‘declaration’. The respondent also stated the FCA should not require a DRSP to submit a copy of any internal review, to support the annual review. The DRSPs declaration that it is compliant having carried out its annual review should suffice.
7.22 In CP16/43, we proposed some changes to our approach and procedures for the authorisation
and verification of DRSPs, to provide clarity on the information required for the extension or variation of authorisation, and notification requirements for an APA or a CTP.
7.23 In CP16/43 we asked in Q15:
Do you agree with our proposed changes to process around authorisation and notification
for DRSPs? If not, please give reasons why
7.24 We also proposed providing guidance in MAR to make it clear that trading venues can use
ARMS to report transactions to us and for a group of investment firms to aggregate their reporting via an internal hub provided the hub uses an ARM or is an ARM.

32 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I
7.25 CP16/43 asked in Q16:

Do you agree with our proposed guidance on transaction reporting at MAR 9.5.9 and
9.5.10? If not, please give reasons why
7.26 All respondents agreed with our proposals to:
process authorisations and notifications for DRSPs
permit trading venues to use ARMs to report transactions to us, and
allow groups of firms to aggregate transaction reporting via a hub
7.27 One respondent asked: if an investment firm reports directly to us, and uses a third party
technology provider to facilitate the investment firm and meet its regulatory obligations, must that third party be an ARM, or must the report be submitted via an ARM? Our response on the DRSP regime proposed in CP15/43 and CP16/43 Information on the DRSP authorisation process has been published on our webpage www.fca.org.uk/markets/mifid-ii/data-reporting-services-providers. We will endeavour to publish updates on DRSP authorisation timelines in a timely manner, to allow potential applicants sufficient time to make necessary arrangements towards completing their application, and being granted DRSP authorisation in time for MiFID II. A list of authorised DRSPs will be provided on EMSA’s website. In addition, we will provide a table of UK authorised DRSPs on our website. In January 2017 we published our ‘MiFID II – Application and notification user guide’. This clarified what we consider to be a complete DRSP application for authorisation, and that complete applications for authorisation of DRSPs must be submitted by 3 July 2017 to ensure we will assess them before 3 January

We also hosted a number of pre-application meetings and forums to
prepare the industry for completing and submitting their applications. We believe that our proposal for an annual review of compliance by a DRSP under MAR 9.3.7 is consistent with Article 59(4) of MiFID II which allows each NCA to determine its own supervisory approach to keeping under regular review the compliance of DRSPs with the conditions for their initial authorisation and their on-going obligations. We do not think the annual review will impose incremental costs other than of minimal significance. DRSPs will need to monitor their policies and procedures put in place to achieve compliance with their obligations and we would expect that in light of the management body’s obligation to ensure effective and prudent management of the DRSP that it receives regular reports on compliance. An overall review of compliance is needed to highlight where there are changes to information initially or previously reported, although obviously we would expect there to be a particular focus on areas where policies and procedures might have changed.

Financial Conduct Authority March 2017 33 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 We would expect the MAR 9 Annex 5D ‘material change in information’ to capture any change from the information provided by the DRSP at the time of its authorisation. For the anniversary to submit the annual notification in MAR 9 Annex 8D – both the ‘commencement’ of the service to provide a DRS, and ‘authorisation’ to become a DRSP become effective from 3 January 2018. A DRSP may choose to attach a copy of any internal review in support of the annual notification, but is not required to do so. However, any documents which demonstrate compliance with the conditions of authorisation under RTS 13 must be made available to us on request. With respect to amending the text in MAR 9.1.2G (4) to clarify that an ARM provides the service of ‘submitting transaction reports,’ we have not amended the definition in MAR. The definition in MAR 9.1.3G (4) is based on the Article 4 (52) MiFID II definition, that an ARM provides a service of …’reporting details of transactions to competent authorities… on behalf of investment firms’. It is clear that the investment firm remains responsible for the completeness, accuracy and timely submission of the reports that are submitted to the CA, under Article 26(7) of MiFIR and Article 11 of RTS13. Any fees charged for DRSP connectivity are charged on a cost-recovery basis. In CP 16/19 we confirmed the DRSP authorisation fees, and consulted on our Market Data Processor (MDP) on-boarding fees for conforming to the technical standards for the MDP. We acknowledge the potential conflict that exists between the CSDR and DRS Regulations. We also acknowledge that it is essential that a CSD should not be able to provide DRSP services without it being authorised and supervised in line with MiFID II. Details of the practicalities of this remain to be worked out. With respect to potential inconsistency in terms of connectivity/outsourcing requirements for RIEs versus non-RIE entities alluded to in the response, we would highlight that MiFID II applies to entities that are recognised entities under the RRR. Whereas, under REC 2.2.3-2.2.7 RIEs are expressly permitted to outsource certain functions this does not extend to transaction reporting which will be covered by MiFID II. In MAR 9.5.9 G we clarify that a trading venue may report transactions for the purposes of Article 26 of MiFIR to us using an ARM.
Article 26(7) of MiFIR states an investment firm may report transactions directly
to us, or via an ARM acting on its behalf, or a trading venue through whose system the transaction was completed. We recognise that an investment firm may use the services of a third party technology provider to assist the firm with the preparation of the data for transaction reporting. An investment firm may use a third party technology provider to submit its transaction reports provided that the third party technology provider is an ARM, or the third party technology provider uses an ARM to report the transactions to us. We won’t extend the non-disclosure agreement to enable ARMs to share the entire technical specification with their clients. However, we will allow ARMs to reflect the relevant parts within their own documentation, and share this with

34 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I their clients. Not all of the specification is relevant to ARM clients, and it remains our intellectual property. Transaction reporting – collective investment undertakings and pension funds
7.28 For the purpose of MiFID II, in CP 15/43 we reviewed the likely costs and benefits of applying
the new MiFID II transaction reporting requirements to managers of collective investment undertakings and pension funds, whom we currently require to report transactions but are exempt from the requirement to report transactions under MiFID II. We proposed not to extend the application of obligations under Article 26 of MiFIR transaction reporting obligations to those managers. This is contrary to the approach we took with MiFID where we extended the MiFID transaction reporting obligation to these firms.
7.29 We conveyed our expectations for MiFID investment firms, non-RIE trading venues and nonEEA firms who will be required to transaction report in accordance with Article 26 MiFIR or
GEN to establish connectivity with our system. For instrument reference data, we stated that we expected SIs and non-RIE trading venues, which are required to provide reference data in accordance with Article 27 of MiFIR, to establish connectivity with our system.
7.30 In CP15/43 we asked in Q15:

Do you agree with our proposals not to apply the transaction reporting obligation to
managers of collective investment undertakings and pension funds? If not, please give reasons why
7.31 Responses generally favoured our proposals for the transaction reporting obligation for
managers of collective investment undertakings and pension funds, and agreed on the basis that this approach helps to ensure effective compliance while minimising the compliance costs which arise from MiFID II reporting. Others disagreed with the proposal on grounds of cost and the liability imposed on trading venues.
7.32 Most understood the rationale behind MiFIR requirements for reducing the number of firms
subject to transaction reporting obligations. Some respondents anticipated that it would increase the challenge for trading venues and investment firms to provide accurate and complete data for members and participants who are not subject to the transaction reporting obligation under MiFIR.
7.33 It was argued that some managers of collective investment undertakings and pension funds
will not be sufficiently motivated to implement appropriate systems and controls to ensure trading venues are provided with accurate data. Given the responsibility falls on the trading venues, this exposes them to heightened risk of regulatory intervention/censure.
7.34 Some respondents that were trading venues thought the proposed approach was fundamentally
different to the one in place under the current regime, and there may be potential risk of double reporting due to confusion among buy-side firms on whether they have an obligation to report. To mitigate the risk of double reporting, they requested that information should be shared on the MiFID status of UK asset management firms in a public register.
7.35 One respondent asked for a clear statement as to the scope of firms’ activities that are
impacted. It noted that PERG 13, Q43 indicates that we consider portfolio management activity

Financial Conduct Authority March 2017 35 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 undertaken by UCITS management companies and AIFMs for third party clients do not fall within the Article 2 exemption in MiFID II, suggesting that the activity falls within the scope of MiFID II and is subject to the MiFIR transaction reporting regime. The respondent also said that firms conducting activity for their own funds and for third party clients would find it easier not to filter out the activity for their own funds but to report it all to us. They argued that the ‘over reported’ activity falls outside of MiFIR but would provide NCAs with more visibility of the activity. They requested that we confirm that activities undertaken by a firm in connection with its management of a collective investment undertaking, such as operation of an associated savings scheme ISA etc., are covered by the Article 2 exemption in MiFID II.
7.36 Some respondents expressed concerns around the confidential nature of the data that trading
venues would need to collect, store and transmit. Data confidentiality regimes vary across the globe and for non-EEA firms there may be concerns about whether the provision of this data is consistent with local privacy laws.
7.37 Some respondents supported our proposals on the basis that reporting of duplicate information
and associated costs will be eliminated. Any cost from transaction reporting would be passed on to clients of collective investment undertakings thus increasing the price of their products and subsequently making these less attractive.
7.38 A couple of respondents recommend streamlining reporting obligations under the UCITS
Directive, AIFMD and MiFID II as this would enable a more homogenous framework and reduce the burden on firms. Our response on transaction reporting – collective investment undertakings and pension funds We will not extend the application of Article 26 of MIFIR transaction reporting obligations to managers of collective investment undertakings and pension funds. It remains our view that the potential benefits of extending the MiFID II transaction reporting obligations to these firms would be outweighed by the expected costs. This takes into account the complexities introduced by MiFIR along with the existence of provisions such as Article 26(5) of MiFIR – reporting by trading venues on behalf of members and participants that are not subject to the transaction reporting obligation in MiFIR. We acknowledge that as a result of not extending the obligation under Article 26, of MiFIR to managers of collective investment undertakings and pension schemes these managers will potentially be brought into the group of members and participants of trading venues that trading venues will have to report on behalf of under article 26(5). Many of these managers will not however, access the trading venues directly but will place their orders with a firm that will access the trading venue. In addition, whereas extending the obligation for the managers of collective investment undertakings or pension funds would mean imposing a requirement for these managers to report where none exists under Article 26 of MiFIR, trading venues already have to report under article 26(5) for other members or participants that are not subject to MiFIR transaction reporting obligations. Further, this aligns the requirements for trading venues and managers of collective investment undertakings across the EEA. We confirm that PERG Q43 rightly acknowledges that ‘in the case of UCITS management companies, some MiFID provisions will apply to those who provide portfolio management services (other than collective portfolio management),

36 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I investment advice or safekeeping and administrative services in relation to units by third parties, by virtue of Article 6.4 of the UCITS Directive)’. Portfolio management is a MiFID investment service, when performed by a UCITs manager but the point is that the only MiFID provisions which apply to it are those stipulated by Article 6 of the UCITS Directive These provisions do not include the transaction reporting requirements in MiFIR and nor does Article 1 MiFIR apply to UCITS managers. The application provision in SUP17A.1.1R reflects the stated policy preference in CP 15/43 not to gold plate in regards to UCITS management companies in paragraph 7.19 and the scope of both MiFIR and the UCITS Directive. With respect to streamlining reporting obligations across different reporting regimes such as the UCITS directive, AIMFD and MiFID II this falls outside the scope of the issues we consulted upon. The concern around data confidentiality is something that arises from Article 26(5) of MiFIR more generally rather than arising from the decision not to extend the application of transaction reporting under Article 26 of MiFIR to collective investment undertakings and pension funds and as such falls outside of the scope of the issues we consulted upon. Transaction reporting – connectivity for certain entities sending transaction reports and reference data
7.39 We made proposals in CP15/43 to amend SUP17 to make clear that entities other than ARMs
and RIEs providing transaction reports to us and entities other than RIEs providing financial instrument reference data to us must connect to our systems to do so.
7.40 In CP15/43 we asked in Q16:

Do you agree with our proposals to require connectivity with our systems for certain entities
sending transaction reports and reference data to us? If not, please give reasons why
7.41 The responses to this question were split:
Those agreeing doing so on the basis that connectivity to our MDP for the purpose of
submitting transaction reports and instrument reference data is already established under the current regime and should continue to be essential under MiFID II.
Those disagreeing recommended expanding the text to allow entities which are required
to submit transaction reports and instrument reference data to make use of certified third party providers who will connect to the MDP under an outsourcing agreement. They advised that this arrangement would minimise cost and the number of connections that the FCA will need to maintain.
7.42 Some respondents noted that sometimes investment firms might be inadvertently acting as
SIs (for example in relation to new issues) which would give rise to non-linear reference data submissions. For this reason, the respondents recommend that investment firms operating SIs should retain the option to use DRSPs for the entirety of their operations.

Financial Conduct Authority March 2017 37 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
7.43 Other respondents had considered the data delivery requirements under Article 3.1 of RTS 3 for
APAs, and believe those requirements are not as complex as those for ARMs. They therefore believe that a lower connectivity cost should apply for entities submitting instrument reference data.
7.44 Some respondents raised concerns around the reference data requirements which entered into
force in July 2016 (Article 4 of the Market Abuse Regulation) and they welcome guidelines on the connectivity requirements for the purpose of the submission of this data to us.
7.45 One respondent requested early guidance from us on the technical connectivity feeds required
to be put in place for the purpose of transaction reporting and instrument reference data submissions. Another respondent sought additional information on connectivity to our MDP for the purpose of submitting transparency data.
7.46 Another respondent suggested clarifying that the requirement for connectivity is dependent
on the type of activity performed by the firm rather than the type of entity that it is thus addressing potential ambiguity around the reporting requirements of non-MiFID firms based in the UK and non-UK MiFID firms. Our response on connectivity for certain entities sending transaction reports and reference data We have produced detailed market interface specifications for all types of data which require a technical connection for direct submission to us https://www. fca.org.uk/markets/market-data-regimes/market-data-reporting-mdp. In relation to reference data submission requirements brought about by Article 4 of the Market Abuse Regulation, ESMA has provided technical specifications https://www.esma.europa.eu/policy-rules/mifid-ii-and-mifir/mifir-reportinginstructions In terms of queries, comments and requests for clarification relating to trading venues outsourcing transaction reporting data and instrument reference data submission to third parties, these have been addressed in MAR 9.5. Any queries or comments around transparency data fall outside the scope of SUP17 and we will therefore not be addressing them in this PS.

38 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 8. Algorithmic and High Frequency Trading (HFT) Requirements Introduction
8.1 This chapter is of interest to trading venues and investment firms and banks who engage in
algorithmic trading, including those who apply a high-frequency algorithmic trading technique. Systems and controls for algorithmic trading on MTFs and OTFs
8.2 In CP15/43 we proposed amendments to MAR 5 and text in the new MAR 5A, transposing
the provisions in Title III of MiFID II that apply high-level systems and controls requirements for algorithmic trading to MTFs and OTFs. More detailed requirements are contained in RTS 7 which we reference in the Handbook.
8.3 The Handbook currently references ESMA’s 2012 automated trading guidelines which have
been supplanted by RTSs 6 and 7. We will amend the Handbook to remove these references and replace them with a transposed text of, or references to, RTSs 6 and 7.
8.4 In CP15/43 we asked in Q17:

Do you agree with our proposal to add in the rules outlined above to our Handbook? If not,
please give reasons why
8.5 All respondents supported our general approach to Handbook implementation. Some provided
suggestions to make technical improvements to the proposed rules, to ensure consistency with the MiFID II provisions. Others asked that we clarify further:
provisions concerning trading venues’ testing environments and drop copy facilities where
more prescriptive requirements around deadline and minimum data relating to order and trade data would be beneficial, ensuring fair and non-discriminatory fee structures by requiring sufficient public transparency
whether the market making obligations under MAR 5.3A.5 should apply to liquid
instruments only given the difficulty in applying such obligations to illiquid instruments
8.6 Some respondents noted the apparent difference in the way RMs and MTFs/OTFs are treated
in relation to the provision of DEA to trading venues based in EEA. In their view, whilst REC
Section 2.5.1(10) is aligned with Article 48(7) of MiFID II in permitting only those EEA regulated
investment firms and credit institutions to be a DEA provider, the corresponding proposed

Financial Conduct Authority March 2017 39 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 rules for MTFs (MAR 5.3A9) and OTFs (MAR 5A.5.9) also permit non-EEA investment firms and overseas firms registered in accordance with Article 46 of MiFIR. Our response on systems and controls for algorithmic trading on MTFs and OTFs Based on the feedback received, we have made some technical changes to our proposals. It is not our intention to provide further guidance on the interpretative issues raised by respondents. But we have taken account of the points raised in our work in ESMA on Level 3 Q&A. We accept that there should be alignment provisions setting out who can provide DEA across different types of trading venue. Since our consultation, the Treasury has published near-final implementing legislation, including DEA provisions for RIEs. We have aligned the provisions in both REC and MAR with the provisions in the Treasury’s implementing legislation. Systems and controls for algorithmic trading by investment firms and for general clearing members
8.7 In CP15/43 we proposed a new section in MAR, MAR 7A, to set out the additional MiFID
II requirements which an algorithmic trading firm, a firm providing DEA to a trading venue or a firm acting as a general clearing member must comply with, in addition to the general organisational requirements in Senior Management Arrangements, Systems and Controls (SYSC). As such, the content of the new chapter should be read in conjunction with the SYSC
part of the Handbook.
8.8 In CP15/43 Q18-Q22 we asked:

Do you agree with our proposal to add in the rules outlined above to our Handbook? If
not, please give reasons why. Do you agree with our proposal to add a new section to MAR for Algorithmic and HFT firms, DEA providers and general clearing members? If not, please give reasons why
Do you foresee any implementation issues with the content of MAR 7A? If so, please
provide examples
Are you in favour of the reports under MAR 7A.3.7 and MAR 7A.4.5 being submitted to us
regularly, as opposed to an ad hoc basis?
If you are in favour, what will be the advantages of regular reporting as opposed to ad hoc
reporting?
If we were to require regular reporting, what would be the cost to your firm?
8.9 All respondents agreed that our proposal to create a new, dedicated section of the Handbook
capturing requirements for algorithmic and HFT firms, DEA providers and general clearing members was preferable to the alternative option of incorporating the relevant standards into SYSC. Respondents felt that this provided a clearer view of the requirements for the firms

40 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I concerned. Some noted that fine tuning of the regulations in the future would be better managed if the relevant provisions were contained in a standalone chapter of the Handbook, given the rapid developments in the area of algorithmic trading and HFT.
8.10 Respondents asked for clarity on whether the record keeping requirement for HFTs under MAR
7A.3.8 is applicable at user, system or firm level, and consistency across the Handbook for eligible firms offering DEA services to a trading venue.
8.11 Several respondents provided the following examples of issues which arise as a result of the
proposed MAR 7A.

Market making – respondents asked for clarity as to whether a market making agreement
needs to be concluded with participants on the section of a trading venue operating under a reference price waiver. They thought that obligations under MAR 7A.3.4 and RTS 8 Article 1 may not be applicable to those participants using the section of a trading venue which operates under the reference price waiver, which can execute at the mid-price under MiFIR and hence no ‘firm, simultaneous two way quotes’ existed.
Disorderly trading – respondents noted that the requirements under MAR 7A.3.2R and
MAR 7A.4.2R on pre-trade controls referenced Market Abuse Regulation. They contended that it was impossible to ensure that a trading system could capture order submission in breach of the general prohibitions under the said Regulation, and that such a strict requirement may not reflect the intention of the co-legislators and did not reflect RTS 6
Article 13. They suggested amending the rule to state; ‘cannot ordinarily be used for any
purpose that is contrary to:’
DEA provision for non-EEA firms – a number of respondents were unsure whether we
had accurately copied the provision under Article 18(5) of MiFID II ‘an investment firm that provides direct electronic access to a trading venue shall be responsible for ensuring that clients using that service comply with the requirements of this Directive and the rules of the trading venue’ into the proposed MAR 7A, as the current draft did not clarify how broadly MiFID II standards should be applied to DEA users, particularly those non-EEA firms that were not otherwise subject to MiFID II obligations.
Business continuity arrangements – a respondent suggested that the proportionality
conditions per RTS Article 14(1) would be better reflected by amending MAR 7A.3.3(1) thus ‘have in place effective appropriate business continuity arrangements to deal with any failure of its trading systems’.
Flagging of algorithms – a respondent suggested a harmonised approach to implementing
flagging of algorithms be adopted, as issues may arise if venues were to implement different logic.
Order to Trade Ratio (OTR) monitoring – a respondent expressed preference for OTR
monitoring requirement to be applied at a member level, so as to avoid excessively complex implementation.
8.12 On the question of whether the submission of the reports under MAR 7A.3.7 and MAR 7A.4.5
to us should be done on a regular or on an ad hoc basis, all but one of the 11 respondents clearly stated their preference for the latter.
8.13 In addition, some respondents expressed concerns that if ad hoc reporting were to be introduced,
the requirements in MAR 7A.3.7 and MAR 7A.4.5 to provide the relevant information to us

Financial Conduct Authority March 2017 41 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 “within 14 days from receipt of the request” would not give firms sufficient time in which to provide all the information specified. Consequently, they proposed that the timeframe for providing such information be extended to “within 30 days from receipt of the request”.
8.14 In estimating the cost of complying with regular reporting, only one firm was able to provide
an estimate of the cost (£500,000 per year). Others noted that unless further clarity is provided with respect to the specific content and periodicity of such reporting, it would not be possible to estimate the additional cost. Our response on systems and controls for algorithmic trading for investment firms and for general clearing members. Our response on systems and controls for algorithmic trading by investment firms and for general clearing members We will retain the current proposed structure of including a new specific chapter on algorithmic and HFT firms, DEA providers and general clearing members. We will consider amending the text to clarify the text following some of the technical suggestions made by the respondents. On the frequency of reporting, if regular reporting is required, there would be additional cost as compared to an ad hoc reporting regime, both in terms of staffing costs and time. Although such cost increase would be dependent on the content and periodicity of such reporting required, in absence of an overriding motive to implement a regular reporting regime, we will maintain the proposed ad hoc reporting regime. Furthermore, we will extend the timeframe for responding to ad-hoc requests to 30 days.

42 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 9. Passporting and branches of non-European Economic Area (EEA) firms Introduction
9.1 The section of this chapter dealing with passporting is of interest to anyone who wishes to
provide investment services, or perform investment activities, in other EEA countries under MiFID II, either on a cross-border basis or through an establishment.
9.2 The section of this chapter dealing with the application of directly applicable EU regulations is
relevant to UK branches of non-EEA firms undertaking investment services and activities. Passporting changes proposed in CP15/43 and CP16/19
9.3 In CP15/43 we proposed changes to SUP 13 to signpost the draft RTS and draft implementing
technical standards (ITS) that were developed by ESMA and that will be adopted by the Commission in relation to passporting under MiFID II. The RTS will set out the information to be included in a passport notification and the ITS will contain the procedures and forms to be used.
9.4 In CP16/19 we proposed reproducing the notification forms contained in the draft ITS in the
annexes to SUP 13. We also proposed to amend SUP 13.5.3R and SUP 13.8.1R to require firms to submit these notifications electronically by using the FCA CONNECT system, as is the case with current MiFID notifications. We also proposed to issue two new notification forms to complement those proposed by ESMA: one for cancellation of investment services and activities passports, and another for the cancellation of passports in respect of OTFs and MTFs.
9.5 Some process changes resulting from the ITS were also reflected in the amendments to SUP
13 proposed in CP15/43 and CP16/19. In particular, under the ITS, firms will now be required to submit one notification per member state for service passports, as they currently do for establishment passports, and to submit one notification per MTF or OTF.
9.6 In CP15/43 we asked in Q23:

Do you agree with our proposed Handbook changes on passporting? If not, please give
reasons why
9.7 In CP16/19 we asked in Q5:
Do you agree with our proposal relating to the passporting provisions in SUP? If not, how
could we amend it?

Financial Conduct Authority March 2017 43 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
9.8 Regarding the requirement that firms submit one notification per country, it was suggested
by one respondent that we could develop the electronic form (via CONNECT) so that firms could select the member states that they wish to passport into and only enter the relevant information once (where it is common to each required form), with the system then generating multiple forms for the selected EU states.
9.9 Under MiFID II firms are required to provide details of the passporting arrangements for each
MTF/OTF platform they operate. It was suggested by one respondent that a facility for a separate application per operator of MTFs and OTFs where the operator wishes the same passporting notification to be used across their permissions would be helpful.
9.10 Questions were asked in relation to the grandfathering process for existing passports and
details on this were provided in the ‘MiFID II – Application and notification user guide’ – see
Chapter 8.
9.11 Respondents also asked questions about the guidance in SUP that relates to the relationship
between tied agents and branches, the ITS forms to be used when establishing a branch and a tied agent, and the way in which the ITS forms should be submitted, which has now been provided. We have also clarified that firms will now be required to submit one notification per member state, for both service and establishment passports, and to submit one notification per MTF or OTF. Our response on passporting changes proposed in CP15/43 and CP16/19 The ITS will be directly applicable to investment firms. It will prescribe the notifications to be submitted to NCAs and it is quite clear from the final ESMA draft that investment firms will be required to submit separate notifications for each member state. It says: ..’The investment firm shall submit a separate investment services and activities passport notification […] for each Member State into which the investment firm intends to operate..’ That said, we acknowledge the feedback received, and will consider whether the impact of these requirements can be minimised through our CONNECT system. Additional information will be made available in due course. The ITS will require investment firms making notifications about the provision or arrangements to facilitate access to an MTF or OTF to use the form set out in Annex IV of the ITS, which we will reproduce in SUP 13 to enable submission through CONNECT. The final ESMA draft of the form at Annex IV of the ITS is clear that it can only be used for one MTF or OTF at a time. We acknowledge the feedback received, and will evaluate whether the impact of these requirements can be minimised through our CONNECT system. Additional information will be made available in due course.

44 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I SUP Transitional Provision and other minor changes
9.12 Our ‘MiFID II – Applications and notification user guide’ referred to the transitional arrangements
that we intend to put in place between 31 July 2017 and 3 January 2018 to help firms bring their passports into line with the changes of scope resulting from MiFID II as of 3 January 2018. This guide said that during the transitional period, we will ask firms to submit the new MiFID II passport notifications by email to MiFID.passport@fca.org.uk.
9.13 We will introduce a transitional provision in SUP to give effect to this. This will apply the
amendments to SUP 13 described above from 31 July 2017 for the purpose of making notifications relating to business covered by the extended scope of MiFID II, but in a modified form to reflect our intention to receive the notifications subject to the transitional arrangements by email rather than through the FCA CONNECT system. Firms will be able to see the version of SUP 13 that applies to transitional notifications, including links to the new forms, by using the Handbook feature that allows you to go forward in time.
9.14 Passport notifications for existing MiFID business during this period will continue to be made in
line with SUP 13 as it is currently in force, which means using the existing MiFID notification form and the FCA CONNECT system. That will change on 3 January 2018, when the amendments to SUP 13 described above will apply to notifications for existing MiFID and new scope MiFID II business.
9.15 Please note that during the transitional period, firms wishing to make a MiFID notification
(effective before 3 January 2018) alongside a MiFID II notification (effective only from at least 3 January 2018) will have to submit two separate notifications, one through CONNECT in relation to the MiFID business, and one by email as per our transition arrangements for the new-scope MiFID II business. Application of directly applicable EU regulations to branches of non-European Economic Area (EEA) firms
9.16 In CP15/43 we proposed a new rule in General Provisions (GEN) to subject branches of nonEEA firms whom we have authorised and who undertake investment services and activities to
the obligations in the directly applicable regulations that are a part of MiFID II. The aim of this rule was to ensure that such firms are treated no more favourably than branches of EEA firms.
9.17 In CP15/43 we asked in Q24:

Do you agree with the drafting of our proposed rule to apply obligations in directly applicable
regulations to UK branches of non-EEA firms? If not, please give reasons why
9.18 The few responses we received to this question were generally positive, a couple raised
substantive points. One said it was necessary to take care to avoid unintended consequences in applying directly applicable regulations wholesale to non-EEA firms. The other said account needed to be taken of the fact non-EEA branches may not fit within the MiFID II / MiFIR classification matrix, and that the application of directly applicable regulations to branches of non-EEA firms would need to take account of the fact the passporting system in MiFID II relies on the existence of a regulator in the home member state who can be relied upon to provide supervision of the passporting entity.

Financial Conduct Authority March 2017 45 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Our response on the application of directly applicable EU regulations to branches of non-European Economic Area (EEA) firms We will implement the proposal we consulted on. It is a general rule that can be modified by specific provisions in individual Handbook modules, as we have done, for example, in SYSC. We believe that firms who are authorised here and conduct investment business do fit within MiFID II as a result of being subject to our rules including the provision in GEN. We do not think that the home/ host split of regulatory responsibility relating to incoming firms is relevant to branches of non-EEA firms authorised in the UK, for the purposes of our GEN rule.

46 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 10. Principles for businesses (PRIN) Introduction
10.1 This chapter is of relevance to a wide range of firms including investment banks, potential
operators of OTFs, and wholesale brokers. It will also be of interest to non-financial firms who are classified as eligible counterparties (ECPs) and local authorities. Changes to the application of the principles for businesses
10.2 As a result of the way MiFID was implemented, parts of the Principles for Businesses sourcebook
(PRIN) are currently switched-off for firms who conduct MiFID business with ECPs. In CP15/43 we proposed to apply Principles 1 (Integrity), 2 (Skill, care and diligence), 6 (Customers’ interests), 7 (Communications with clients) and 8 (Conflicts of interest) in full to firms when conducting MiFID business with ECPs.
10.3 CP15/43 asked in Q25:

Do you agree with our proposal to apply Principles 1, 2, 6, 7 and 8 in full to firms when
conducting business with ECPs under MiFID II? If not, please give reasons why
10.4 Respondents generally supported the proposal to update PRIN to accommodate the changes
made to MiFID II in respect of firms’ conducting MiFID business with ECPs. The majority of respondents held the view that the proposed changes would pose little difficulty for firms in complying with MiFID II and the UK regulatory framework due to the similarity in the obligations, and that they would support consistency in the application of rules across all firms and business.
10.5 One respondent questioned our proposal to delete PRIN 4.1.4G(1)(a). Other respondents
emphasised the need to apply these Principles proportionately. Respondents asked whether we would apply Principle 6 and Principle 7 to business with ECPs in the same way as we would do to business with professional and retail clients, or whether our intention was only to extend the Principles to the extent required by MiFID II. In particular, respondents pointed out that the Principle 6 concept of treating customers fairly is primarily designed to protect retail and professional clients rather than ECPs. One respondent expressed concerns that applying Principle 6 to ECPs would create uncertainty as to what is meant by ‘fair treatment’.

Financial Conduct Authority March 2017 47 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Our response on the changes to the application of the principles for businesses PRIN provides a set of fundamental standards that apply to all authorised firms. These high level rules are designed to ensure that consumers are protected, market integrity is ensured and effective competition is promoted. As we noted in CP15/43, a general principle of effective regulation is that the Principles should apply to every authorised firm, unless there is a reason for them not to apply, for example because they conflict with EU law obligations. For instance, a number of the Principles for Businesses were modified or switched-off when MIFID was implemented. However, MiFID II at Article 30 reduces the number of areas where conduct requirements are switched off for ECPs. As a consequence, we propose to apply to a greater extent our general approach that the Principles should apply to all authorised firms for all forms of regulated business. This means modifying the effect of provisions that switch off certain Principles when conducting business with ECPs under MiFID II. We believe this to be an important step in ensuring concepts of fairness, integrity and professionalism exist within ECP relationships. In light of the positive feedback received, we will apply Principles 1, 2, 6, 7 and 8 to firms when conducting MiFID business with ECPs, as proposed. In response to the queries on how Principles 6 and 7 would be applied to ECPs, it is our view that although fairness may have one meaning for business with retail clients, it is a concept that must be considered in the context of the particular relationship and the type of services and activities that a firm engages in with its ECP clients, with reference to our rules and guidance. It does not imply the imposition of retail level protections to these relationships. Nonetheless, as a fundamental standard, firms must consider what ‘fair’ means within this provision and exercise judgement accordingly. More generally, PRIN 1.1.9 notes that some of the other rules and guidance in the Handbook have a bearing on the application of the Principles in particular circumstances, but this should not be viewed as exhausting the implications of the Principles themselves, given they are intended to apply also to new or unforeseen situations. We recognise that as a matter of drafting, we will need to ensure that references to ‘customer’ and ‘client’ within the Principles give proper effect to our policy intention. We have therefore modified the definition of ‘customer’ used within the Principles for MiFID business. As noted in CP15/43, we will not further modify the application of the Principles to ECP business for non-MiFID designated investment business at this time, although note that this remains an option open to us. Consequential to the limited application of the Principles to eligible
counterparty business, a change was proposed to delete PRIN 4.1.4G(1)(a). However, we agree with respondents that while we propose removing exclusions from the application of the Principles to ECP business, some exclusions still remain relevant (for example, that Principle 9 continues to be switched off). We will therefore retain PRIN 4.1.4G(1)(a) in its current form to reflect this.

48 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Changes to the client categorisation of local authorities for non-designated investment business
10.6 Firms are currently able to categorise local authorities as ECPs for non-designated investment
business, such as general business or accepting deposits. We proposed in CP15/43 that this should no longer be the case, consistent with the fact that under MiFID II local authorities are retail clients, albeit with the ability to opt up to be elective professional clients.
10.7 CP15/43 asked in Q26:

Do you agree with our proposal to update PRIN 1 Annex 1 to delete the possibility of local
authorities being treated as ECPs for the purposes of PRIN in respect of non-designated investment business? If not, please give reasons why
10.8 The majority of respondents agreed with our proposal. However, some questioned the strength
of our case for making this change. Many, including local authorities, commented regarding the broader policy implications of preventing firms classifying local authorities as ECPs for all forms of business, including how the policy would apply in relation to local authorities’ pension schemes, the alternative criteria for opting up local authorities to ‘elective’ professional clients and the importance of transitional arrangements for local authorities. Our response on changes to the client categorisation of local authorities for non-designated investment business We set out our proposals for changes to the categorisation of local authorities for MiFID and non-MIFID business, including those required by MiFID II, through changes to COBS 3 of the Handbook in CP16/29. This included our proposals to apply equal treatment of local authority clients for MiFID and non-MiFID designated investment business. These proposals will be dealt with in our second MiFID II PS in June 2017. We will also settle the policy questions emerging from our proposals in CP15/43 on the Principles and the treatment of local authorities as ECPs at the same time.

Financial Conduct Authority March 2017 49 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Consultation paper II (16/19) response

50 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 11. Commodity Derivatives Introduction
11.1 This chapter is relevant for trading venues (regulated markets, MTFs and OTFs), MiFID investment
firms trading commodity derivatives, and users of commodity derivatives markets, including non-financial firms who conduct significant amounts of trading. A new regime for commodity derivative position limits, position management and position reporting
11.2 In CP16/19 we proposed a new section of MAR to set out guidance and directions on MiFID
II’s regime of position limits, position management and position reporting for commodity derivatives contracts. Position limits will be set in due course.
11.3 In CP16/19 we asked in Q2:

Do you agree with our proposed new MAR chapter, MAR 10? If not, how would you
suggest we modify our proposals?
11.4 A small number of respondents stated they did not agree with the proposals made in MAR 10
because the MiFID II Level 2 legislation on commodity derivatives, RTS 20 and 21, had not been finalised at the time FCA carried out its consultation.
11.5 All respondents were supportive of the idea of dedicating a specific section within the
Handbook to the subject of commodity derivatives. A number of respondents said some provisions within MAR 10 needed to be clarified when further certainty is available on the definition of a commodity derivative and hence whether it is captured by this regime or not.
11.6 A small number of respondents commented on certain aspects of the Level 2 work, in the form
of ITS and RTS, which is being carried out by ESMA.
11.7 One suggested changes to parts of MAR 10 with the purpose of setting an obligation for nonfinancial entities to submit applications for position limit exemptions.
11.8 Another proposed changes mandating consultation between trading venues and their members
or participants prior to changes to the venue’s position management controls.
11.9 A question was raised on whether the scope of position reporting obligations of trading venue
members should be limited to investment firms only.

Financial Conduct Authority March 2017 51 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
11.10 Comments were made about the various usage of the terms ‘client’ or ‘clients’ in the proposed
text, and clarification sought on whether they applied as an FCA defined term. Our response on a new regime for commodity derivative position limits, position management and position reporting We recognise we consulted on proposed changes to our Handbook when certain aspects of the source legislation were not final. However, we felt it was beneficial to engage at an early stage and make amendments consequently where necessary. Comments which relate to the Level 2 work implementing MiFID II are not relevant to the content of MAR 10 on which FCA has consulted. Whilst they are noted, it is not possible to incorporate this material within our rules. We do not consider an amendment to set an obligation for non-financial entities to submit applications for position limit exemptions is appropriate; a market participant may respond to an approaching position limit breach in a number of ways. If it is eligible, it may apply for an exemption. However, it has alternatives available, primarily by the modification of its trading activity to ensure the limit is not breached. Trading venues already conduct a dialogue with their members and participants on rule proposals. We do not see it necessary to introduce a new provision specifically to deal with this aspect of rulemaking. We recognise the importance of clarity and certainty in the use of defined terms, particularly where they may give rise to regulatory obligations. We have therefore reviewed the usage of these terms and made adjustments to clarify their application.

52 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 12. Supervision Introduction
12.1 The part of this chapter relating to notification of breaches of regulatory obligations is relevant
for all MiFID investment firms. The part of this chapter dealing with transaction reporting is relevant to all firms who are currently required to transaction report. Changes to notification requirements for breaches of regulatory obligations
12.2 In CP16/19 we proposed amending SUP 15.3 so that persons subject to obligations under MiFIR
and non-FSMA UK implementing legislation are required to notify us of breaches of these obligations.
12.3 In CP16/19 we asked in Q3:

Do you agree with our proposal relating to breaches of directly applicable regulations under
MiFID II and non-FSMA regulations implementing MiFID II? If not, how could we amend it?
12.4 The small number of respondents who answered this question all agreed that it made sense to
revise SUP 15.3 in the way we proposed. They offered no other comments. Our response to changes of notification requirements for breaches of regulatory obligations We will implement the changes to SUP 15.3 in the form we consulted on them. Transitional arrangements for reporting breaches of current transaction reporting requirements
12.5 In CP16/19 we proposed amending SUP to include transitional provisions to (i) make clear that
an obligation which a firm incurs under SUP 17 or the MiFID implementing regulation on or before 2 January 2018 continues until it has been satisfied, and (ii) that the requirements in SUP relating to notification and remedy of breaches apply to breaches of MiFID implementing regulation even if the breach comes to light after 2 January 2018.

Financial Conduct Authority March 2017 53 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
12.6 In CP 16/19 we asked in Q4:

Do you agree with our proposal for transitional provisions to deal with the revocation of the
MiFID implementing regulation? If not, how could we amend it?
12.7 We received ten responses in relation to transaction reporting. Five respondents supported the
proposals, although one of these noted that the activities were not relevant to the regulated firms they supported.
12.8 One respondent that was an Approved Reporting Mechanism (ARM) noted that there could
be a risk that some firms would be less able to meet the new reporting requirements if they were required to expend resource correcting breaches from the previous transaction reporting regime. This respondent advised it would be maintaining its pre-MiFID II architecture to allow firms to meet their SUP 17 requirements and rectify any breaches that come to light after 3 Jan 2018.
12.9 The remaining four respondents requested clarification on the reporting of transactions executed
on 2 January 2018 and the treatment for amendments, cancellations or late reports for trades executed prior to 3 January 2018, but submitted on or after that date, and one respondent noted that the fact there was no clarification as to the reasonable timeframe for notifying and remedying breaches of the MiFID implementing regulation was causing difficulties for firms and infrastructure providers.
12.10 One respondent suggested that the purpose of TP 9 was wider than the stated purpose
of ensuring that firms continue to notify and remedy breaches of the MiFID implementing regulation and SUP17, and should be clarified as being to ensure that firms continue to comply after 2 January 2018 with the reporting obligations they had as of that date. Our response on transitional arrangements for reporting breaches of current transaction reporting requirements We confirm that this transitional provision provides us with the ability to take action against firms post 3 January 2018 for breaches in their transaction reporting obligations regarding transactions executed prior to 3 January 2018 and this would include a failure to notify us of any breaches. In respect of remediation, we could require remediation of any systems and controls that would have an impact on the firm’s transaction reporting obligations under MiFIR. We are currently unable to provide a response to the questions raised in the consultation on remediation post 3 January 2018 of incorrect or missing reports for transactions executed prior to 3 Jan 2018 as work is ongoing on how the transition between reporting under MiFID to reporting under MiFIR will work and this may have an impact on what we ask from firms in this regard. We will therefore implement the transitional provision with some minor drafting amendments.

54 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 13. Prudential Rules Introduction
13.1 This chapter is relevant to investment firms who wish to operate an OTF, and ‘local’ firms
currently exempt from MiFID.
Changes to our prudential sourcebooks
13.2 In CP16/19 we proposed changes to our prudential sourcebooks to reflect MiFID II’s introduction
of the new investment service of operating an Organised Trading Facility (OTF), the abolition of the exemption for a ‘local’ firm and updates to certain references. Our proposals were based on changes we consider follow automatically to prudential rules from various of the changes being made in MiFID II, as opposed to being discretionary policy choices.
13.3 In CP16/19 we asked in Q6:

Do you agree with the changes we are making to our prudential rules? If not, please give
reasons why
13.4 One respondent wanted confirmation that the only provisions in Chapter 1 of MiFID II that
apply to a market operator operating an MTF or an OTF are 16, 18, 19 and 20. Another queried how an investment firm operating an MTF and OTF would be treated for prudential purposes as the relevant rule in the Prudential sourcebook for Investment Firms (IFPRU) talked about a firm operating ‘either an MTF or an OTF’. Finally, a respondent opposed the proposal in relation to OTFs. They said that many of the activities currently being carried out by firms likely to be required to become OTFs are permissions under the Prudential sourcebook for Banks, Building Societies and Investment Firms (BiPRU) and that the proposals would raise costs and limit choice.
13.5 In CP16/29 we proposed a consequential amendment to the Handbook to replace the current
cross-reference to article 2(1)(i) of MiFID with the new reference to article 2(1)(j), and asked in Q65:
Do you agree with our proposed consequential changes to IPRU(INV)3? If not, how could
we amend them
Our response on changes to our prudential sourcebooks It cannot be assumed that the only provisions in Chapter 1 of MiFID II applying to a market operator operating an MTF or OTF are those in Articles 16, 18, 19

Financial Conduct Authority March 2017 55 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 and 20. There is no such limitation in MiFID II and we note that the Treasury’s implementing legislation will extend the application of Article 14 to such firms. An investment firm operating both an MTF and an OTF will be an IFPRU 730k firm. The wording in our proposal was intended to cover firms operating either an MTF or OTF or both types of venue. Whilst we recognise that elements of what an OTF will do might currently be covered by BiPRU permissions, we believe that the CRR is clear that operating an OTF is an activity which falls outside of BiPRU permissions, in the same way that operating an MTF does currently. For the consequential changes, we received no further comments. We will implement the proposals we consulted on.

56 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 14. SYSC – Systems and Controls Introduction
14.1 This chapter is relevant for common platform firms, which include BiPRU firms, banks, building
societies, MiFID investment firms, designated investment firms, IFPRU firms, exempt CAD firms, local firms and dormant account fund operators, Article 3 MiFID exempt firms and UK branches of non-EEA firms. Changes for Article 3 firms
14.2 In CP16/19 we proposed to apply ‘at least analogous requirements’ to MiFiD optional
exemption firms (hereafter, referred to as ‘Article 3 firms’) authorised and operating in the UK by transposing various MiFID II provisions by way of rules or guidance, depending on how MiFID II applies the provisions. We also proposed to introduce two new tables in SYSC1 (Tables B and C) to facilitate Handbook navigation, and introduced a draft version of these new tables in CP16/19 for firms to comment on.
14.3 In CP16/19 we asked in Q7:

Do you agree with our proposals on the application of ‘at least analogous requirements’ to
Article 3 firms authorised and operating in the UK? If not, please give reasons
14.4 We received a small number of supportive responses on this proposal. Some commented that
similar requirements were already in force under MiFID. One respondent commented that applying the requirements equally in this way would help create a ‘level regulatory playing field’. Another also noted that ‘better run’ Article 3 firms tend to already be compliant with these proposals.
14.5 One respondent expressed concern that the new requirements might, when being applied in
practice, become more onerous and burdensome, in particular, for small business.
14.6 Another asked whether Authorised Professional Firms (APFs) would be caught within the
regime, given that APFs tend to resemble Article 3 firms in size, structure and business model (indeed, the respondent noted that many – but not all – APFs are also concurrently Article 3 firms).
14.7 Our proposal was to transpose the requirements of Article 16 (on organisation requirements)
of MiFID II into SYSC 1 Annex 1, SYSC 4 – 9.

Financial Conduct Authority March 2017 57 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
14.8 In CP 16/19 we asked in Q8:

Do you agree with our proposals on the transposition of Article 16 (on organisational
requirements) of MiFID II in SYSC 1 Annex 1, SYSC 4-9? If not, please give reasons
14.9 We received a small number of supportive responses to this question. One highlighted that
many firms caught by MiFID II are currently reviewing their internal organisational governance in any regard, in anticipation of the extension of the Senior Managers & Certification Regime (SM&CR) to non-banks.5
14.10 To ensure consistency in transposition of the Directive, we proposed to apply the requirements
of Articles 21 – 25, 30 – 32, and 72 of the MiFID Org. Regulation6 to the non-MiFID business of:
common platform firms
Article 3 MiFID firms
UK branches of non-EEA firms
14.11 In CP16/19 we asked in Q9:
Do you agree with our proposals on the application of the requirements in Articles 21 to
25, 30 to 32, and 72 of the MiFID Org. Regulation to the non-MiFID business of common platform firms, Article 3 MiFID firms and non-EEA firms? If not, please give reasons why
14.12 We received a small number of supportive responses. Several pointed to the benefits in ensuring
consistency and a level playing field. One said that many firms prefer to run just one set of policies and procedures across MiFID and non-MiFID business lines.
14.13 Another respondent noted that draft SYSC 1 Annex 1 Part 2.6C R states that the ‘common
platform requirements apply to an AIFM investment firm which is a full-scope UK AIFM in respect of its MiFID business in line with Column A in Table A of Part 3’. It argued that, for the sake of clarity, it would be helpful to amend the wording of Table A of Part 3 to reinforce that the requirements in Column A are only applicable in respect of a common platform firm’s MiFID business, and do not extend in this instance to its non-MiFID business.
14.14 We propose to apply both the common platform requirements and certain MiFID II Org.
Regulations (Articles 21-25, 30-32 and 72) to Article 3 and non-EEA firms either in the form of Rules or Guidance, as appropriate.
14.15 In CP 16/19 we asked in Q10:
Do you agree with our proposals on the application of the common platform requirements
and those in Articles 21 to 25, 30 to 32, and 72 of the MiFID regulation, either as rules or as guidance to Article 3 MiFID firms and non-EEA firms? If not, please give reasons why 5 The Bank of England and Financial Services Act 2016 includes the extension of the SM&CR to all FSMA authorised firms. We are developing our approach to the extension of the SM&CR and our current plan is to consult during 2017. HM Treasury has stated their intention that the regime should start from 2018. https://www.fca.org.uk/firms/senior-managers-certification-regime 6 ‘The MiFID Org. Regulation’ is the way we refer in SYSC to the Level 2 regulation that contains the implementing measures under
Article 16 of MiFID II concerning organisational requirements.

58 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I
14.16 We received a small number of supportive responses to this question. A couple specifically
welcomed our adaptation of the structure of SYSC to reflect these new provisions in a way which allows firms to more easily navigate the Handbook. Our response on Article 3 Firms We are pleased with the support for our proposals and therefore plan to implement them without change. For Q7 Proportionality. We agree that MiFID II’s governance provisions represent provisions broadly similar to those in MiFID. Therefore, our approach under the new provisions will continue. Thus, we believe that the application of ‘at least analogous’ requirements will have a limited impact in the UK where Article 3 firms are already subject to very similar regulations to firms regulated under MiFID. We expect these changes to lead to minimal incremental costs. Application to APFs. An APF can be a firm:

subject to MiFID – in which case it is a ‘common platform firm’ subject to the
provisions in the SYSC 1 Annex 1 Part 3 Table A column A
subject to Article 3 of MiFID – in which case it is a ‘MiFID optional exemption
firm’ subject to the provisions in the SYSC 1 Annex 1 Part 3 Table B column A
exempt under Article 2(1)(c) of MiFID – in which case it is subject to the
common platform requirements as ‘one of all other firms’ in SYSC 1 Annex 1 Part 3 Table A Column B (noting also SYSC 1 Annex 1 2.5R on the common platform requirements on financial crime, conflicts of interest and Chinese walls)
that can qualify for both (b) and (c) – in which case the APF can rely on the
exemption in Article 2(1)(c) of MiFID and not be subject to the provisions that apply to a ‘MiFID optional exemption firm’ For Q8 We are pleased that many firms are already working to anticipate the upcoming extension of the SM&CR and believe that MiFID II’s organisational requirements will complement the extension of that regime. For Q9 Proposed changes for Table A of SYSC 1 Annex 1 2.6C(R). There has been no policy change in relation to SYSC 1 Annex 1 2.6CR. The only change is the reference to Table A, which is a consequential amendment following the creation of Tables B and C, inserted simply for ease of Handbook cross-reference by firms). The common platform requirements in fact apply as per the provision in the
table in SYSC 1 Annex 1 3.1.G while the extension to the non-MiFID business
is subject to SYSC 1 Annex 1 2.8AR.

Financial Conduct Authority March 2017 59 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 For Q10 We acknowledge the support for our proposals and therefore plan to implement them without change. Changes for conflicts of interest rules
14.17 In CP16/19 we consulted on the following proposals for Chapter 10 of our SYSC Handbook:

Amend SYSC 10 and align it with the provisions of MiFID II, and extend these provisions to
firms other than investment firms
Extend as a rule to all firms the new detailed disclosure obligations under MiFID II and the
requirement to take all appropriate (rather than reasonable) steps to identify and to prevent or manage conflicts of interest, and
For non-scope firms, to extend as guidance the obligation to assess and periodically review,
at least annually, the conflicts of interest policy and the requirement for senior management to receive on a frequent basis written reports on situations contained in the conflicts of interest record.
14.18 Most respondents agreed that we should amend SYSC 10 and align it with the provisions of
MiFID II. This will mean that the new requirements will apply to firms as a combination of rules and guidance.
14.19 In CP16/19 we asked in Q11:
Do you agree with our proposed approach to implementing the MiFID II requirements on
conflicts of interest? If not, how could we amend it?
14.20 Respondents in general supported the proposal to amend SYSC 10 to align it with the provisions
of MiFID II. Some respondents noted that beyond the recognition that the new standards are enhanced, it was not clear what is expected of firms by the emphasis on ‘appropriate’ rather than ‘reasonable’. It was suggested we should provide further guidance on what in practical terms this will mean for firms.
14.21 A respondent requested further guidance about when firms can use disclosure to manage their
conflicts of interest.
14.22 Respondents also queried what steps should be taken in order to comply with the new
conflicts of interest rules in certain situations. For example, a respondent requested clarification regarding situations where firms have self-created conflicts of interest. This followed an earlier Market Watch Newsletter on ‘Payment for Order Flow’ (PFOF), published in September 2016,7 which questioned whether it is possible for a direct, self-created conflict such as PFOF to be adequately managed. We stated that we had not seen a single effective method of managing a direct self-created conflict of this kind. 7 https://www.fca.org.uk/sites/default/files/marketwatch-51.pdf

60 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I
14.23 A respondent stated that the word ‘prevent’ went further than the Level 1 text on conflicts of
interest. This, however, is not the case, as it states in Article 23(1) of MiFID II that ‘firms must take all appropriate steps to identify and to prevent or manage conflicts of interest’.
14.24 In CP16/19 we asked in Q12:

What impact would this approach have on your firm?
14.25 The majority of respondents noted that this would not have a significant impact on their firms.
Three respondents stated that they did not expect the proposed changes to require any material changes to a compliant firm’s systems and controls given the overarching responsibilities under the current SYSC 10 requirements and PRIN 8 (for retail and professional clients).
14.26 A couple of respondents said that it was appropriate to apply the new conflicts of interest
standard to all firms, given its importance. One respondent, however, felt that the enhanced disclosure requirements may have disproportionate impact on smaller firms, in particular small
Article 3 MiFID firms. The respondent noted the increased detail that must be disclosed to
clients as well as the time required to review and amend existing conflicts of interest policies was disproportionate in terms of cost. As such they did not think that it should apply equally to all firms. Our response on changes to conflicts of interest rules Amending SYSC 10. MiFID II requires a shift from taking ‘reasonable’ steps to identify and manage or prevent conflicts of interest to taking ‘appropriate’ steps. This requires firms to be more active in identifying circumstances under which changes to their operations may be necessary to prevent or manage conflicts of interest from arising. This change sets a higher bar for compliance. We expect more internal monitoring and senior management oversight to ensure that the processes and policies of the conflicts of interest framework are appropriate and take into account any new services or products offered by the firm. We expect firms to take suitable remedial actions as soon as any deficiencies in their conflicts of interest framework and operations were detected. Our proposal for implementing the new disclosure requirements under MiFID II means that firms should only use disclosure as a measure of last resort. Disclosing a conflict of interest is not a form of managing that conflict of interest. A firm should take appropriate steps to prevent or manage conflicts of interest beforehand, and only disclose a conflict when the firm’s administrative and organisational arrangements have failed in this regard. However, it is clear that disclosure is not a mechanism that can be relied on by firms to manage their conflicts. While disclosure of specific conflicts of interest is required by SYSC 10.1.8R, an over-reliance on disclosure without adequate consideration as to how conflicts may appropriately be managed is not permitted. Our proposals mean that when dealing with a direct, self-created conflict of interest (such as PFOF, as communicated in the Market Watch newsletter), the most straightforward method of complying with these new rules would be to prevent the conflict from arising in the first place. This is what we expect firms to do when they cannot manage these conflicts and are unable to rely on disclosure. In that PFOF Article we stated that ‘the cumulative impact of these changes [to the conflicts of interest rules under MiFID II] means that firms will

Financial Conduct Authority March 2017 61 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 not be able to charge PFOF without breaching the new standards that we are proposing to introduce to implement MiFID II.’ As such, firms must prevent these self-created conflicts from arising. Impact of the new rules. We expect the proposals will continue to ensure that the effective management of conflicts of interest is at the heart of maintaining fair, orderly and efficient financial markets. In our view, the impact on an individual firm will be to increase senior management’s oversight and responsibilities, as they will receive on a frequent basis, written reports on situations contained in the conflicts of interest record, and have to periodically assess and review the conflicts of interest policy. This will lead to an increased focus on identifying and preventing or managing conflicts of interest and discouraging inappropriate use of disclosure. We expect this to apply proportionately to firms’ business models. For smaller Article 3 firms, we would not expect the same scale of systems and controls that would be in place for a larger investment firm and therefore do not think that the proposals will have a disproportionate impact. The impact of the new standards on the wider industry will be to enhance conduct standards and ensure that there is effective management of conflicts of interest. Given this proposed impact and proportionality, we will continue to apply them to firms as consulted on in CP16/19. Changes to requirements for management bodies
14.27 In CP16/19 we proposed to extend the scope of SYSC 4.3A (which only applied to CRR firms
including significant IFPRU firms) to MiFID firms and Article 3 firms, transposing the approach under Article 9 of MiFID II. Broadly, the proposals require a firm’s management body to have clear allocation of responsibilities, alongside clear responsibility for the risk strategy, business strategy and internal governance of a firm. As we stated in CP16/19, these provisions aim to enhance the effective oversight and control over relevant firms, remedying weaknesses identified during the financial crisis regarding the functioning and composition of management.
14.28 In CP16/19 we asked in Q13:

Do you agree with our proposals on the transposition of Article 9 (on the management
body)? If not, please give reasons why
14.29 We received a small number of supportive responses to the proposal.
14.30 One specifically agreed with our ‘copy out’ method, noting that many requirements envisaged
by Art (9) are ‘already seen as good practice’ by industry. Another argued that ‘enhance[d]’ oversight from management bodies was to be welcomed.
14.31 However, a couple of respondents argued for proportionality for smaller firms. In particular,
one argued that the extension of the requirements from CRD firms (which traditionally, they would consider ‘more sophisticated’ firms) to MiFID II firms will see the provisions apply to smaller firms that may not have the same personnel resource.

62 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I
14.32 We proposed to apply MiFID II’s governance requirements to UK branches of non-EEA firms.
In doing so, we sought to ensure that they should not be treated in such a way as to cause competitive disadvantage for EU firms, while also taking account of the different structures and home-state regulations applicable to non-EEA firms.
14.33 We proposed to maintain the status quo where possible for existing non-EEA firms, but
proposed to elevate the status of some guidance to a rule where we felt there was particular conduct focus and doing so would improve consistency. For new MiFID II obligations, we proposed to introduce new guidance or rules, as appropriate.
14.34 In CP16/19 we asked in Q14:

Do you agree with our proposed application of the Governance requirements to branches
of non-EEA firms? If not, please give reasons why
14.35 We received a small number of supportive responses on this which made a number of comments
on specific technical issues.
Proportionality – general
14.36 One respondent said that no competitive disadvantage should be suffered by EU firms, especially
given that home country organisational requirements will apply; while another argued that this approach should not cause ‘material’ changes.
14.37 Another called for more guidance on proportionality for small and medium sized firms, given
senior management will often constitute members of the management body in these firms. Proportionality – IT security and data protection measures
14.38 Some respondents argued that there was a lack of clarity in how firms should implement SYSC
4.1.1R(3), which implements Article 16(5) of MiFID II’s requirements regarding IT security and data protection.
14.39 One respondent noted that Article 21 of the MiFID Org. Regulation refers to ‘adequate
safeguarding’, which they consider is not as categorical as ‘guarantee’ which is used in Article 16(5) of MiFID II and in SYSC.
14.40 Another asked whether SYSC 4.1.2R (SYSC’s proportionality provisions) would be allowable to
use to permit proportionality in the application of SYSC 4.1.1R(3). Joint ESMA and EBA guidelines on the assessment of suitability of management
14.41 A respondent noted that they would welcome clarity as soon as possible from ESMA and the
EBA on their joint guidelines as regards the assessment of the suitability of members of the management body and key function holders under CRD and MiFID II would be welcome. Outsourcing
14.42 We also had a comment that Article 16(5) of MiFID II, which refers to outsourcing, would fit
best into the SYSC 8 provisions on outsourcing.
Our response on changes to requirements for management bodies We acknowledge the broad support for our proposals and plan to implement them without change.

Financial Conduct Authority March 2017 63 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Proportionality for smaller firms. In response to the comments regarding proportionality for smaller firms, we note that Article 9 of MiFID II mandates that we extend these requirements (stemming from CRD) onto all MiFID firms, including smaller firms. It is for firms to design compliance regimes which comply with the new rules. We appreciate that smaller firms may tailor their programmes and personnel resources in a proportionate manner to appropriately mitigate risk, dependent on their business. We flag that SYSC4.1.2R allows for a ‘comprehensive and proportionate’ application of the governance arrangements, processes and mechanisms in SYSC 4.1.1R. However, we emphasise that the management body requirements are important aspects of the MiFID II reforms and should be taken seriously to ensure that effective corporate governance is embedded in each firm. Proportionality – general. With regards to proportionality for small and medium-sized firms, as above, it is for firms to design compliance regimes which comply with the new rules. We appreciate that some firms may tailor their programmes and personnel resources in a proportionate manner to appropriately mitigate risk, dependent on their business. We flag again that SYSC4.1.2R allows for a ‘comprehensive and proportionate’ application of the governance arrangements, processes and mechanisms in SYSC 4.1.1R. Proportionality – security and data protection measures. The reference to the ‘guarantee[ing]’ of security and data protection mechanisms in SYSC 4.1.1R(3) directly transposes the third paragraph of Article 16(5) of MiFID II, which is the approach we have reflected throughout our adoption of MiFID
II. We have not sought to copy directly the provision from the MIFID Org.
Regulation which applies directly.
We agree with the respondent who commented that SYSC 4.1.2R could be referred to in ensuring compliance with SYSC 4.1.1R(3). As above, SYSC4.1.2R allows for a ‘comprehensive and proportionate’ application of the governance arrangements, processes and mechanisms in SYSC 4.1.1R. Firms must decide how to balance comprehensiveness and proportionality in line with a risk-based approach to compliance. Outsourcing. We agree that SYSC 8 is the best place for Article 16(5) of MiFID II to be transposed, which is why we transposed it in SYSC 8.1.1R.

64 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Changes to organisational requirements consequential to SYSC
14.43 In CP16/29 we proposed consequential changes to the Handbook derived from our changes to
SYSC. These impacted the following Handbook Modules:

Statements of Principle and Code of Practice for Approved Persons (APER)
Consumer Credit sourcebook (CONC)
Decision Procedure and Penalties Manual (DEPP)
Fit and Proper test for Approved Persons (FIT)
Insurance: Conduct of Business sourcebook (ICOBS)
Supervision Manual (SUP)
14.44 We asked in Q64:
Do you agree with our proposed changes to these modules? If not, how could we amend
them?
14.45 Seven responses were received, with unanimous agreement to our proposed approach to
consequential changes. No respondent offered any further comments. Our response on changes to organisational requirements consequential to SYSC We acknowledge the broad support for our proposals and plan to implement them without change. Changes to remuneration
14.46 In CP16/43 we proposed In CP 16/43 we proposed to amend the application of SYSC 19F to
include the UK branch of an incoming EEA firm (unless it is a UCITS investment firm or an AIFM investment firm).
14.47 We asked in Q19:
Do you agree with our proposal to amend SYSC19F? If not, please give reasons why
14.48 The responses were received were supportive of this approach.
Our response on changes to remuneration
We acknowledge the broad support for our proposals and plan to implement them without change.

Financial Conduct Authority March 2017 65 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 15. Remuneration Introduction
15.1 This chapter is relevant to MiFID investment firms and financial advisers and corporate finance
firms exempt from MiFID under Article 3.
Rules on remuneration for sales staff
15.2 In CP16/19 we consulted on a proposed new chapter SYSC 19F ‘Remuneration and performance
management of sales staff’, where we proposed to transpose Article 24(10) of MiFID II on remuneration incentives to sales staff.
15.3 In CP16/19 we asked in Q15:

Do you agree with our proposal to only apply the remuneration provisions for sales staff to
firms carrying on MiFID II business? If not, please give reasons why
15.4 Most of the responses to this question were supportive, although one respondent qualified
their remarks by saying they found our proposals ‘acceptable’ under the current status quo.
15.5 Application of multiple remuneration codes and/or provisions. A respondent commented
on the complexity of the different UK remuneration regimes which are driven by different EU directives, but considered acceptable the proposal in CP16/19 acceptable given this context. However, they did urge for an EU-level review of remuneration codes to improve consistency.
15.6 Relatedly, another respondent asked for clarification on whether the BIPRU remuneration code
would also apply to common platform firms who fall under MiFID II’s remuneration provisions.
15.7 Scope of actions covered by the rule. A respondent asked for clarification as to whether
SYSC 19F, which referred to ‘investment activities’, should was broader than the underlying
Article 24 (10) of MiFID II, which refers to ‘investment firms providing services to clients’. They
noted that SYSC 19F could extend to cover MTFs, whereas Article 24(10) of MiFID II would, in their opinion, not.
15.8 Staff incentives an performance management – scope of provisions. A respondent
asked for clarification on whether investment managers in discretionary management funds, such as non-execution only funds, would constitute sales staff and/or advisors under SYSC 19F.
15.9 Another respondent argued that the definition excluded non-bank staff. They emphasised
that, in their view, there was considerable difference between commission paid on a completed

66 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I transaction under an ‘originate-to-distribute’ model, compared to incentive-based remuneration awarded to ‘code’ staff.
15.10 One respondent commented that a firm’s senior management would not be aware that the
new section is broader than advisers and sales staff, as the chapter title only refers to ‘sales staff and advisers’, although SYSC 19F.1.5(b) also imposes requirements on directors and partners regarding remuneration policies and practices. Our response on sales staff Application of multiple remuneration codes and or provisions. We recognise that there are multiple regimes on remuneration and that this may present complexity. However, given the complex remuneration landscape at the EU level, we believe the provision of separate codes targeted at specific firm types ensures both clarity and proportionality in our rules. In regards to overlap on codes, the provisions in SYSC 19F largely affect a different population of staff to our other codes (which focus on material risk takers). That being said, firms should apply our rules to relevant staff by way of all relevant provisions, and one firm can fall under several remuneration codes and/or remuneration requirements. For example, firms that fall under BIPRU and MiFID II should apply the remuneration rules of each regime to the relevant staff as per each regime. Scope of applications covered by the rule. We have amended the instrument so that it now refers to ‘investment services’. Sales incentives and performance management. We remind firms subject to MiFID II of the overarching policy intention that firms shouldn’t remunerate or assess the performance of their staff in a way that conflicts with its duty to act in the best interests of its clients. Specifically, Article 27(2) of MiFID II Org. Regulation applies to:

‘all relevant persons with an impact, directly or indirectly, on investment
and ancillary services provided by the investment firm, or on its corporate behaviour, regardless of the type of clients, to the extent that the remuneration of such persons and similar incentives may create a conflict of interest that encourages them to act against the interests of any of the firm’s clients.’ Firms should consider and assess which persons meet the criteria set out above, noting the reference to both the potential ‘direct’ and ‘indirect’ impact of relevant persons on investment services or corporate behaviour as a result of remuneration policies. We confirm that SYSC 19F.1.5(b) applies obligations regarding policies and processes to partners and directors of firms. It is up to firms to ensure they comply with all of our regulatory provisions appropriately.

Financial Conduct Authority March 2017 67 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Changes for Article 3 and non-EEA firms
15.11 We also consulted on applying SYSC 19F to Article 3 firms and UK branches of non-EEA firms.
15.12 In CP16/19 we asked in Q16:

Do you agree with our approach to applying the remuneration provisions to Article 3 firms
and third-country firms? If not, please give reasons why
15.13 All the responses to this proposal were in support. One noted that, for non-EEA firms, SYSC
19.F will only apply in relation to activities carried on from an establishment based in the UK. Our response on Article 3 and non-EEA firms We are pleased with the unanimous positive response to our proposals and will therefore implement them without change. We agree with the jurisdictional assessment regarding the application of SYSC 19.F insofar as it applies only in relation to activities conducted from an establishment based in the UK.

68 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 16. Whistleblowing Introduction
16.1 This chapter is relevant to investment firms and UK branches of non-EEA firms.
Implementing MiFID II’s whistleblowing provisions
16.2 In CP16/19, we proposed to introduce a new section of SYSC (SYSC 18.6) to transpose the
whistleblowing requirements in Article 73(2) of MiFID II for investment firms and branches of non-EEA firms.
16.3 We also proposed to use SYSC 18.6 to signpost other similar EU whistleblowing obligations,
providing all firms with a starting point to meet obligations under the various EU whistleblowing provisions
16.4 In CP 16/19 we asked in Q20:

Do you agree with our proposal? If not, how could we approach this issue?
16.5 We received a few supportive responses to this question, some of which offered substantive
comments.
16.6 One noted that the lack of coordination in EU directives regarding whistleblowing was a source
of consternation.
16.7 Another respondent, whilst agreeing with the proposed course of action, did not agree with the
Cost Benefit Analysis (CBA). Specifically, they challenged the statement that, ‘from 7 September 2016 firms will be under domestic requirements to establish whistleblowing procedures. The whistleblowing requirements under MiFID II should not add to the costs of the arrangements that firms are putting in place to comply with that obligation’.
16.8 In their view, the current definition of the word ‘firm’ for the purposes of the current SYSC
18 would only include the very few asset management firms that have permission to deal in investments as principal. As such, in their view, the whole of SYSC 18 as it currently stands does not apply to a significant group of the firms which would be caught by the whistleblowing requirements in MiFID II. Therefore, they argued that the implementation of the MiFID II requirements may well represent a new cost.

Financial Conduct Authority March 2017 69 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Our response on the implementation of MiFID II’s whistleblowing provisions We will implement the proposals with some minor changes . The most significant of these relates to the

CSDR reference in SYSC 18.6.4G. In CP16/19, we included the whistleblowing
obligation under the Central Securities Depositaries Regulation (CSDR) in our guidance in SYSC 18.6 setting out other applicable EU whistleblowing requirements. However, as the CSDR whistleblowing obligation has not yet been transposed into national law, we have removed the reference to this provision in SYSC 18.6.4G. We may consult on a rule to transpose this provision in due course as part of our work on the implementation of the CSDR. We have also introduced some minor changes to SYSC 18.6 to clarify further the intended scope and application of the rules in this section. We acknowledge there are multiple EU Directives from which some of our whistleblowing rules stem, and we provided analysis in CP16/19 on why we believe our Handbook approach is the simplest and most consistent way of treating these. MiFID II introduces new whistleblowing obligations for some firms previously outside the scope of the rules in SYSC 18. The rules in SYSC 18 apply to such firms as guidance. However, the Market Abuse Regulation (MAR), came into effect from 3 July 2016, with whistleblowing obligations under Article 32(3). MAR requires appropriate internal procedures for whistleblowing purposes, and has a broad application to all ‘employers who carry out activities that are regulated by financial services regulation’. We would also note the whistleblowing obligation in MiFID II refer to implementing ‘appropriate’ internal procedures. Firms can tailor their programmes and personnel resources in a proportionate manner to appropriately mitigate risk, dependent on their business. Indeed, we flag that SYSC4.1.2R allows for a ‘comprehensive and proportionate’ application of the governance arrangements, processes and mechanisms in SYSC. As such, we believe that any incremental costs of compliance will be of minimal significance.

70 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 17. Fees Introduction
17.1 In this chapter, we provide feedback on the responses received to proposals on fees in CP16/19:

Applications for authorisation and variations of permission (VoPs): Fees for operators
of OTFs, and clarification of charges for VoPs by operators of OTFs and MTFs and firms undertaking new regulated activities in structured deposits
Onboarding fees: establishing technical conformance with our MDP system in order to
submit the data prescribed under MiFID II
17.2 We also include other rules on which we have already provided feedback:
Our confirmation in CP16/19 that we would implement our fees proposals for DRSPs as
consulted on.
The fees to be charged for applications for MiFID II permissions will be finalised when
the MiFID II transitional regime that enables us to receive and determine them before 3 January 2018 comes into force. In CP16/43 we consulted on a transitional rule relating to application fees for MiFID II permissions. When firms submit a single application to the FCA for more than one permission they are usually charged only one fee, for the most expensive permission. An application for new MiFID II permissions under the transitional regime made together with an application for permissions relating to existing regulated activities would be treated as two separate applications. The transitional rule ensures that such firms are treated for fees purposes as having made a single application and are charged no more than the difference between the two application fees. The rule also applies this benefit to firms who submit draft applications ahead of the SI coming into effect. We received only one comment, in support of the proposal, and we provided feedback in our February Handbook Notice (HN 41) stating our intention to recommend that the FCA Board make the transitional rule as consulted on.
17.3 In April 2017, we will publish our annual Fee CP, consulting on the periodic fee rates for 2017/18.
This will include feedback on responses to our assessment in CP16/33 of the fee-blocks from which we intend to recover the costs of implementing MiFID II and MiFIR and the proposed fee rates. We will consult on the annual fee rates for DRSPs later in the year.

Financial Conduct Authority March 2017 71 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Changes to Fees Manual Applications for authorisation and VoPs
17.4 We proposed that operators of OTFs would be charged on the same basis as operators of
MTFs, who pay a complex application fee of £25,000 and then a two-tier fixed rate periodic fee, depending on whether the MTF is supervised by a named ‘fixed portfolio’ supervisor or a team of ‘flexible portfolio’ supervisors. In 2016/17, the fee for a fixed portfolio MTF was £300,000 and £28,290 for a flexible portfolio MTF. The rates for 2017/18 will be consulted on in our April CP on fee rates.
17.5 When a firm applies for a VoP, it is charged half the application fee if the new permission
moves it into a new fee-block or £250 if it remains in the same fee-block. We explained that we considered it would not be reasonable to charge only £250 when the operator of an MTF applied to operate an OTF or the operator of an OTF applied for an MTF, and so we proposed that the 50% VoP fee of £12,500 would be a fairer reflection of the work we undertake.
17.6 Finally, we proposed to expand the definition of fee-block A13 (Advisors, arrangers, dealers or
brokers) to include the new MiFID II permissions relating to structured deposits, with the usual £250 VoP charge.
17.7 We received a few comments on applications for authorisation and VoPs. A couple supported
our proposal to charge OTFs on the same basis as MTFs. One noted that the charging structure for VoPs appeared to be reasonable, provided our charges represented a fair reflection of the work we undertake. Another disagreed that the periodic fees for OTFs and MTFs should be set by reference to whether there is a named ‘fixed portfolio’ supervisor or a team of ‘flexible portfolio’ supervisors due to a concern that the fee would then be based on the regulatory status of the operating firm rather than the OTF or MTF it operates. Onboarding fees
17.8 In November 2015,8
we proposed a two-tier structure of onboarding fees for entities connecting their systems to our MDP so that they could submit the data prescribed under MiFID II. The charges are intended to recover the costs of establishing connectivity for secure file transfer, compatibility of systems, testing of data conformance, etc. At that time, we had not appointed our MDP provider so had no definitive costings. In CP16/19, we had a more accurate basis for estimating our costs since we had appointed the provider and had more robust information about the entities which will be submitting data to our system. We were accordingly able to propose lower onboarding charges than we had originally estimated – £20,000 for applying to establish conformance to submit transaction reporting data and £10,000 for each subsequent application to establish conformance for all other data types. We provided examples to illustrate the total fees an entity might pay if it needed to make multiple connections.
17.9 We received a couple of responses. One agreed that our proposals seemed fair. The other gave
qualified support. While welcoming the reduction from the indicative charges quoted in 2015, the firm stressed that ‘The onus is on the FCA to ensure these figures are accurate and that this is true cost recovery which cannot be covered from other internal funding sources.’ 8 FCA regulated fees and levied: Policy proposals for 2016/17 (CP 15/34, November 2015)

72 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Our response on changes to the fees manual We will proceed with all of our rules as consulted on.

MTF and OTF fees: The comment about the regulatory status of MTFs and
OTFs provides an opportunity to clarify that the current MTF fee is indeed proportionate to the specific MTF activity and does not take account of the firm’s wider activities. As we explained when we consulted on introducing this structure for MTFs in our March 2016 CP on fee rates (paragraph 9.14):
‘It should be noted that, while a firm as a whole may be supervised as a fixed portfolio firm, its MTF operations might be supervised on a flexible portfolio basis.’ Operators of OTFs will be charged on the same basis. A fixed portfolio firm will therefore continue to pay the lower fee if it is operating a flexible portfolio MTF or OTF.
Onboarding charges: We note the comment that the onus is on us to ensure
our onboarding charges reflect our costs. We will keep usage of the MDP and our costs under review. If we need to revise our charges in the future, we will consult on them. We do not have internal funding sources apart from fees paid by regulated firms, and we believe it is reasonable that, given the high costs of onboarding, firms connecting to our system should contribute towards these costs.

Financial Conduct Authority March 2017 73 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Consultation paper III (16/29) response

74 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I 18. Taping Introduction
18.1 In CP16/29, we consulted on implementing the MiFID II taping requirements. MiFID II requires us
to extend our domestic taping regime to include certain additional activities and organisational requirements not currently covered by the existing regime. In particular, we are required to apply a taping obligation to RFA firms that are investment firms, and to MiFID firms undertaking corporate finance business where that business relates to the reception and transmission of client orders, the execution of orders on behalf of clients or dealing on own account. We are also required to extend ‘analogous requirements’ to MiFID optionally exempt (Article 3) firms.
18.2 We consulted on applying the same MiFID taping standard to all Article 3 firms. To ensure
proportionality, and noting that the ‘analogous’ requirement can be met in various ways, we stated in that consultation that we were open to receiving alternative proposals for smaller
Article 3 RFAs.
18.3 We also proposed to apply the MiFID II taping standard to a wider range of activities than those
required by the Directive, namely:

the service of portfolio management, including removing the current domestic qualified
exemption for discretionary investment managers,
corporate finance business generally [where the activities are not already captured by the
Directive]
Energy market activities and oil market activities
UK branches of non-EEA firms
the activities of collective portfolio management.
18.4 In CP16/43 and CP17/8 we further consulted on applying the MiFID II requirements on taping
to other non-MiFID business, namely:
commodity and exotic derivative instruments (in CP16/43), and
OPS firms acting as discretionary investment managers (in CP17/8).
18.5 Along with the other proposals consulted on in CP16/29 (as well as CP16/43 and CP17/8), we
will be publishing our final rules on taping in the second PS in June. As we determine our final approach to taping we will continue to engage with industry in all the areas that we have consulted on.

Financial Conduct Authority March 2017 75 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
Article 3 retail financial advisers (RFAs)
18.6 In CP16/29, we indicated that we would consider the proportionality of the proposals to tape
firms who can be characterised as Article 3 RFAs, and were open to receiving and exploring suggestions on alternative proposals for firms, particularly for smaller financial advisers. The consultation closed in January and we are still in the process of reviewing some of the technical detail of the responses. However, given this approach in the CP, it is right to give early clarity to these firms in order to aid their preparations for being MiFID II compliant by 3 January 2018.
18.7 Based on the responses received and following extensive industry engagement, we have
concluded that additional flexibility for all Article 3 RFAs is appropriate. This is because the business model of many of these firms is such that a full taping obligation may not always be proportionate. As such, we will propose that these firms, irrespective of size, can comply with the ‘at least analogous’ requirement by either taping all relevant conversations or taking a written note of all relevant conversations. The decision to tape or take a note should be taken at the level of the firm rather than in relation to individual relevant conversations or the relevant conversations of different advisers. This flexibility will not be available to MiFID investment firms who can be characterised as RFAs.
18.8 We are still in the process of determining what details firms must include in this note, ahead
of the full rules being published in June. This is because in order for the note to meet the ‘analogous’ requirement under MiFID II, it must have an analogous outcome in terms of advancing our consumer protection objective. Firms will not be able to rely solely on their current record keeping requirements to meet this objective.
18.9 We are likely to undertake a formal review of how these proposals have been adhered to in a
post-implementation review project.

76 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I
Annex 1
List of non-confidential respondents
Consultation Paper I (CP 15/43)
Abide Financial Limited
Association of Foreign Banks
Association for Financial Markets in Europe Australia and New Zealand Banking Group Limited Alternative Investment Management Association Bats Trading Limited British Bankers Association Bloomberg L.P. The Chartered Institute of Public Finance & Accountancy Citadel CME Group Inc. City of London Law Society Deutsche Bank Euroclear Euronext Eversheds LLP Federation of European Securities Exchanges Futures Industry Association FIA European Principal Traders Association Investment Association ICAP Plc. ICE Futures Europe/ ICE Trade Vault Europe Limited

Financial Conduct Authority March 2017 77 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Institute of Chartered Accountants in England and Wales IG Markets Limited Instinet Europe Limited International Financial Data Services International Swaps and Derivatives Association Investment Association London Metal Exchange and LME Clear London Stock Exchange Plc. Society of Pension Professionals Tradeweb UBS Group Wholesale Markets Brokers’ Association Consultation Paper II (16/19) Association for Financial Markets in Europe Alternative Investment Management Association Association of Professional Financial Advisers Baillie Gifford & Co British Bankers Association Charles Stanley CME Group Inc. EA Change Group European Federation Energy Traders Euronext Futures Industry Association Fidelity Institute of Chartered Accountants in England and Wales Institutional Money Market Funds Association Ltd

78 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Investment Association London Stock Exchange Plc. PricewaterhouseCoopers LLP Standard Life Savings City of London Law Society Threesixty services LLP Tax Incentivised Savings Association Verint Wealth Management Association Wholesale Markets Brokers’ Association Consultation Paper III (16/29) – Taping proposals Association for Financial Markets in Europe Alpha FMA and Jardine Lloyd Thompson Group Alternative Investment Management Association & Managed Funds Association Altitude Partners AMR Financial Management Association of Professional Financial Advisers Association for British Insurers AV Trinity Bovill – KSL Capital Partners Bowmark Capital LLC British Bankers Association British Private Equity and Venture Capital Association Cambridge Fund Managers Limited City of London Law Society Company Sense Network Compliance New Limited

Financial Conduct Authority March 2017 79 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5 Confidel Consort Financial Planning DPI Financial Services EA Change Group Enterprise Investment Scheme Association First Capital IFA Ltd GI Integrity Financial Planning Guiness Funds Hastings O’Loughlin Investment Association Legal and Medical Investments McLeod Ross Limited Miller Knight Moore Stephens Oakworth Consultancy Services Partridge Financial Prudential Quadrant Group Schroders Siguler Huff LLP SimplyBiz Group St James Place Tenet Group The Association of Invesment Companies Threesixty Services LLP Tiley Bestinvest Time Financial Planning Ltd

80 March 2017 Financial Conduct Authority PS17/5 Markets in Financial Instruments Directive II Implementation – Policy Statement I Tax Incentivised Savings Association True Potential TT International Verint Wealth Management Association Wholesale Markets Brokers’ Association FCA Consumer Panel FCA Practitioner Panel and Small Business Practitioner Panel

Financial Conduct Authority March 2017 81 Markets in Financial Instruments Directive II Implementation – Policy Statement I PS17/5
Appendix
Made rules (legal instrument), and near-final rules This Appendix comprises three instruments:

Fees (MiFID 2 Application Fees) instrument 2017
Fees (Data Reporting Applications) instrument 2017
Markets and organisational requirments (MiFiD 2) instrument 2017
Instrument 1) has been made and comes into force on 2 April 2017. Instruments 2) and 3) are published in near final form.

FCA 2017/20
FEES (MiFID 2 APPLICATION FEES) INSTRUMENT 2017 Powers exercised A. The Financial Conduct Authority makes this instrument in the exercise of the following powers and related provisions in the Financial Services and Markets Act 2000 (“the Act”):
(a) section 137A (The FCA’s general rules); (b) section 137T (General supplementary powers); (c) section 139A (Power of the FCA to give guidance); and (d) paragraph 23 (Fees) in Part 3 (Penalties and Fees) of Schedule 1ZA (The Financial Conduct Authority); and B. the rule-making powers listed above are specified for the purpose of section 138G (Rule-making instruments) of the Act. Commencement
C. This instrument comes into force on 2 April 2017.
Amendments to the Handbook
D. The Glossary of definitions is amended in accordance with Annex A to this instrument for the purposes of FEES 3. E. The Fees manual (FEES) is amended in accordance with Annex B to this instrument. Citation F. This instrument may be cited as the Fees (MiFID 2 Application Fees) Instrument 2017. By order of the Board 30 March 2017

FCA 2017/20
Annex A
Amendments to the Glossary of definitions Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. operating an organised trading facility (in relation to FEES 3), the regulated activity in article 25DA of the Regulated Activities Order, which is in summary, the operation of an organised trading facility on which non-equity MiFID instruments are traded. In this definition “non-equity MiFID instrument” means any investment:
(a) of the kind specified by articles 77, 77A, 78, 79, 80, 81, 82B, 83, 84 or 85; or (b) of the kind specified by article 89 of the Regulated Activities Order, so far as relevant to an investment falling within (a); that is a bond, a structured finance product (within the meaning of article 2(1)(28) of MiFIR), an emissions allowance, or a derivative (within the meaning of article 2(1)(29) of MiFIR). organised trading facility (in relation to FEES 3), (in accordance with article 3(1) of the Regulated Activities Order):
(a) an organised trading facility (within the meaning of article 4(1)(23) of MiFID II) operated by an investment firm, a credit institution or a market operator; or (b) a facility which:
(i) is operated by an investment firm, a credit institution or a market operator which does not have a Home State; and (ii) if its operator had a Home State, would be an organised trading facility within the meaning of article 4(1)(23) of MiFID II. [Note: article 4(1)(23) of MiFID II] OTF (in relation to FEES 3), organised trading facility.

FCA 2017/20
Annex B
Amendments to the Fees manual (FEES)
In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 3 Application, Notification and Vetting Fees …
3.2 Obligation to pay fees
…
3.2.7 R Table of application, notification, vetting and other fees payable to the FCA
Part 1: Application, notification and vetting fees
(1) Fee payer (2) Fee payable (£) Due date … (p) A firm applying for a variation of its Part 4A permission whose fee is not payable pursuant to sub-paragraph (ga) of this
table
(1) Unless (2), (2A),
(3), (3A), (3B), (3C) or, (3D) or 3(E) applies, if the proposed new business of the firm would fall within one or more activity groups specified in Part 1 of FEES 4 Annex 1AR not applicable before the application, the fee is 50% of the highest of the tariffs set out in FEES 3 Annex 1R which apply to that application. … (3E) The fee is 12,500 if the firm applying:
(i) is an MTF operator and the proposed new business of the firm is to be an OTF operator; or (ii) is an OTF operator On or before the date the application is made

FCA 2017/20 and the proposed new business of the firm is to be an MTF operator. … 3 Annex 1R Authorisation fees payable …
Part 2 – Complexity Groupings groupings not relating to credit-regulated
activities Straightforward Cases
…
Complex cases
Activity grouping Description
… …
B MTF operators and OTF operators
…
Insert the new FEES TP 15 after FEES TP 14 (Transitional provisions relating to FEES 4 for benchmark administrators and recognised investment exchanges). The text is not underlined. TP 15 Transitional Provisions for the MiFID II Order
15.1 Introduction
15.1.1 G FEES TP 15 deals with transitional arrangements for applicants applying for
permissions as introduced by the MiFID II Order.
15.2 Interpretation
15.2.1 R The “MiFID II Order” is the Financial Services and Markets Act 2000
(Regulated Activities) (Amendment) Order 2017 (SI 2017/xxxx).
15.2.2 G The MiFID II Order makes amendments to the Financial Services and
Markets Act 2000 (Regulated Activities) Order (SI 2001/544) to transpose parts of MiFID II. The MiFID II Order was brought into force on 1st April 2017, and enables

FCA 2017/20 the FCA to determine applications made under it.
15.3 Application
15.3.1 R (1) FEES TP 15.4.1R applies:
(a) to a person who:
(i) makes an application to the FCA for a Part 4A permission or an application for a variation of a Part 4A permission other than under article [15] of the MiFID II Order; and also (ii) makes an application to the FCA for a Part 4A permission or an application for a variation of a Part 4A permission under article 15 of the MiFID II Order; (b) where:
(i) applications under FEES TP 15.3.1R(1)(a)(i) and FEES TP 15.3.1R(1)(a)(ii) are made on the same date; or (ii) an application under FEES TP 15.3.1R(1)(a)(i) is made before an application under FEES TP 15.3.1R(1)(a)(ii); and (c) either:
(i) the applications under FEES TP 15.3.1R(1)(a)(i) and FEES TP 15.3.1R(1)(a)(ii) are made on the same date; or (ii) an application under FEES TP 15.3.1R(1)(a)(i) is made before an application under FEES TP 15.3.1R(1)(a)(ii), where the following two conditions apply:
(A) a draft of the application described in FEES TP 15.3.1R(1)(a)(ii) is received by the FCA before the date the MiFID II Order came into force; and (B) the applicant confirmed that the draft application can be treated as a formal application on or after the date that the MiFID II Order came into force.

FCA 2017/20
15.3.2 G FEES TP 15.4.1R does not apply to dual regulated firms which are
authorised or have applied to become authorised by the PRA.
15.4 Calculation of fees payable under FEES 3.2.1R
15.4.1 R Where this rule applies, the fee payable under FEES 3.2.1R in respect of the
application described under FEES TP 15.3.1R(1)(b) is any positive amount that results from the following calculation:
(1) the fee payable under the application described under FEES TP 15.3.1R(1)(a)(ii); LESS (2) the fee paid for the application described under FEES TP 15.3.1R(1)(a)(i).
15.5 Transitional provisions: dates in force
15.5.1 R FEES TP 15 will remain in force until 3 January 2018.

FCA 2017/XX
FEES (DATA REPORTING APPLICATIONS) INSTRUMENT 2017 Powers exercised A. The Financial Conduct Authority makes this instrument in the exercise of:
(1) the following powers and related provisions in the Financial Services and Markets Act 2000 (“the Act”):
(a) section 137A (The FCA’s general rules); (b) section 137T (General supplementary powers); (c) section 139A (Power of the FCA to give guidance); and (d) paragraph 23 (Fees) in Part 3 (Penalties and Fees) of Schedule 1ZA (The Financial Conduct Authority); and (2) the powers of direction, guidance and related provisions in or under the following provisions of the Data Reporting Services Regulations 2017 (SI 2017/xxxx):
(a) regulation 21 (Fees); and
(b) regulation 22 (Guidance).
B. The rule-making powers listed above are specified for the purpose of section 138G (Rule-making instruments) of the Act. Commencement
C. This instrument comes into force on [date].
Amendments to the Handbook
D. The Glossary of definitions is amended in accordance with Annex A to this instrument for the purpose of FEES 1, FEES 2 and FEES 3. E. The Fees manual (FEES) is amended in accordance with Annex B to this instrument. Citation F. This instrument may be cited as the Fees (Data Reporting Applications) Instrument 2017. By order of the Board [date] 2017

FCA 2017/xx
Annex A
Amendments to the Glossary of definitions Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. data reporting service (in relation to FEES 1, FEES 2 and FEES 3) (in accordance with regulation 2(1) of the DRS Regulations) the operation of an APA, an ARM or a CTP when carried out as a regular occupation or business activity. data reporting services provider (in relation to FEES 1, FEES 2 and FEES 3) a person operating one or more data reporting service. DRS Regulations (in relation to FEES 1, FEES 2 and FEES 3) the Data Reporting Services Regulations 2017 (SI 2017/[xxxx]). incoming data reporting services provider (in relation to FEES 1, FEES 2 and FEES 3) a data reporting services provider authorised or applying for authorisation under Title V of MiFID II in an EEA State, other than the UK, to provide a data reporting service in the UK.

FCA 2017/xx
Annex B
Amendments to the Fees manual (FEES)
In this Annex, underlining indicates new text and striking through indicates deleted text. 1 Fees Manual
1.1 Application and Purpose
1.1.1 G (1) …
…
(3) FEES 3 (Application, Notification and Vetting Fees) covers one-off fees payable on a particular event for example:
(a) various application fees (including those in relation to authorisation, variation of Part 4A permission, registration as a CBTL firm, authorisation of a data reporting services provider, listing and the Basel Capital Accord); and … … … 2 General Provisions
2.1 Introduction
…
Purpose
…
2.1.5 G (1) The following enable the FCA to charge fees to cover its costs and
expenses in carrying out its functions:
…
(d) article 25(a) of the MCD Order; and
(e) regulation 21 of the Small and Medium Sized Businesses (Credit Information) Regulations .; (f) regulation 18 of the Small and Medium Sized Business (Finance Platforms) Regulations ; and

FCA 2017/xx
(g) regulation 21 of the DRS Regulations.
…
…
2.1.5C G (1) The FCA also has a fee-raising power as a result of:
(a) regulation 21 of the Small and Medium Sized Businesses (Credit Information) Regulations; and (b) regulation 18 of the Small and Medium Sized Business (Finance Platforms) Regulations; and (c) regulation 21 of the DRS Regulations. … …
2.2 Late Payments and Recovery of Unpaid Fees
…
Recovery of Fees
2.2.3 G (1) Paragraph 23(8) of Schedule 1ZA of to the Act permits the FCA to
recover fees (including fees relating to payment services, the issuance of electronic money, fees relating to CBTL firms, data reporting services providers, designated credit reference agencies, designated finance platforms and, where relevant, FOS levies and CFEB levies). … … 3 Application, Notification and Vetting Fees
3.1 Introduction
…
3.1.1A R A reference to firm in this chapter includes a reference to a fee-paying payment service provider, a CBTL firm, a fee-paying electronic money issuer, a designated finance platform and , a designated credit reference agency and a data reporting services provider. … 3.1.6D G …

FCA 2017/xx
3.1.6E G (1) Application fees for authorisation under regulation 7 of the DRS Regulations, and under regulation 8 of the DRS Regulations for operators of trading venues seeking verification of their compliance with Title V of MiFID II are set out in the table at FEES 3.2.7R. (2) The fee depends on the number of data reporting services for which the firm is making an application. …
3.2 Obligation to pay fees
…
Method of payment
…
3.2.5 G (1) (a) The appropriate authorisation or registration fee is an integral part
of an application for, or an application for a variation of, a Part 4A permission, authorisation, registration or variation under the Payment Services Regulations or the Electronic Money Regulations, registration under article 8(1) of the MCD Order, authorisation under regulation 7 of the DRS Regulations or verification under regulation 8 of the DRS Regulations or notification or registration under the AIFMD UK regulation. (b) Any application or notification received by the FCA without the accompanying appropriate fee, in full and without deduction (see FEES 3.2.1R), will not be treated as an application or notification made, incomplete or otherwise, in accordance with section 55U(4), or section 55H of the Act or regulation 5(3) or 12(3) of the Payment Services Regulations or regulation 5 or 12 of the Electronic Money Regulations or regulation 11(1) and 60(a) of the AIFMD UK regulation, regulation 7(2) of the DRS Regulations or
article 9 of the MCD Order.
…
…
…
3.2.7 R Table of application, notification, vetting and other fees payable to the FCA
Part 1: Application, notification and vetting fees
(1) Fee payer (2) Fee payable (£) Due date … (zw) An applicant for Either (1) or (2) applies On or before the

FCA 2017/xx authorisation under regulation 7 of the DRS Regulations, or the operator of a trading venue seeking verification of their compliance with Title V of MiFID II. as set out below:
(1) If the applicant is applying for permission to operate one data reporting service, 5,000. (2) If the applicant is applying for permission to operate more than one data reporting services, 50% of the fee at (1) for each additional service plus the fee at (1). application is made. …

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MARKETS AND ORGANISATIONAL REQUIREMENTS
(MiFID 2) INSTRUMENT 2017
Powers exercised
A. The Financial Conduct Authority makes this instrument in the exercise of:
(1) the following powers and related provisions in the Financial Services and Markets Act 2000 (“the Act”):
(a) section 64A (Rules of conduct);
(b) section 137A (The FCA’s general rules); (c) section 137H (General rules about remuneration); (d) section 137T (General supplementary powers); (e) section 139A (Power of the FCA to give guidance); (f) section 293 (Power to make notification rules in respect of recognised bodies); (g) paragraph 23 (Fees) of Part 3 (Penalties and Fees) of Schedule 1ZA (The Financial Conduct Authority); (h) paragraph 19 (Establishment) of Schedule 3 (EEA Passport Rights); and (i) paragraph 20 (Services) of Schedule 3 (EEA Passport Rights). (2) the power in regulation 11 of the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001, as inserted by the Financial Services and Markets Act (Markets in Financial Instruments) Regulations 2017; (3) the powers of direction, guidance and related provisions in or under the following provisions of [the Data Reporting Services Regulations 2017]:
(a) regulation 7 (Application for authorisation); (b) regulation 8 (Application for verification of compliance); (c) regulation 11 (Cancellation of authorisation); (d) regulation 12 (Variation of authorisation); (e) regulation 21 (Fees); (f) regulation 22 (Guidance); and (g) regulation 24 (Reporting requirements); (4) the powers of direction, guidance and related provisions in or under the following provisions of the [Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017]:
(a) regulation 14 (Position limits)
(b) regulation 17 (Power to require information); (c) regulation 18 (Applications from non-financial entities); (d) regulation 35 (Guidance); (e) regulation 36 (Reporting requirements); and (f) regulation 52 (Application of Schedule 1ZA to the Act); and

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(5) in relation to the Glossary of definitions, the other rule- and guidance-making powers listed in Schedule 4 (Powers exercised) to the General Provisions of the FCA’s Handbook. B. The rule-making powers referred to above are specified for the purpose of section 138G(2) (Rule-making instruments) of the Act. Commencement
C. This instrument comes into force on 3 January 2018 except as indicated in (1) to (6)
below:
(1) FEES 3.1.2G, FEES 3.2.7R(zx) and FEES 3.2.7R(zy) and the related Glossary definitions in Part 1 of Annex A come into force on 3 July 2017; (2) chapter 9.1 of the Market Conduct sourcebook (MAR) in Annex L; MAR 9.2 (except for MAR 9.2.3D, MAR 9.2.4G and MAR 9.2.5D); MAR 9.3 (except for MAR 9.3.1D, MAR 9.3.2D, MAR 9.3.3G, MAR 9.3.7D, MAR 9.3.8D and MAR 9.3.9G); MAR 9.5; MAR 9 Annexes (except for MAR 9 Annex 3D, MAR 9 Annex 4D, MAR 9 Annex 5D, MAR 9 Annex 6D, MAR 9 Annex 8D and MAR 9 Annex 9D) come into force on [the date of commencement of the Data Reporting Services Regulations 2017]; (3) for the purposes of (2) every direct and indirect reference to the term CTP is not to be read as including reference to the operation of a CTP in relation to bonds, structured finance products, emission allowances and derivatives traded on a trading venue until 3 March 2019; (4) for the purposes of MAR 9.2.3D, MAR 9.2.4G, MAR 9.2.5D; MAR 9.3.1D, MAR 9.3.2D, MAR 9.3.3G; MAR 9.3.7D, MAR 9.3.8D, MAR 9.3.9G; MAR 9.4; MAR 9 Annex 3D; MAR 9 Annex 4D; MAR 9 Annex 5D; MAR 9 Annex 6D; MAR 9 Annex 8D and MAR 9 Annex 9D every direct and indirect reference to the term CTP is not to be read as including reference to the operation of a CTP in relation to bonds, structured finance products, emission allowances and derivatives traded on a trading venue until 3 September 2019; (5) MAR 10.2.4D and MAR 10 Annex 1D relating to the application process for non-financial entities for the exemption from position limit obligations come into force on [date]; and (6) SUP 1.2 TP in Annex M (Supervision manual (SUP)), which contains transitional provisions in relation to the exercise of passport rights by UK firms, comes into force on [31 July 2017].

FCA 2017/xx
Amendments to the Handbook
D. The modules of the FCA’s Handbook of rules and guidance listed in column (1) below are amended in accordance with the Annexes in this instrument listed in column (2) below. (1) (2) Glossary of definitions Annex A Principles for Businesses (PRIN) Annex B Senior Management Arrangements, Systems and Controls sourcebook (SYSC)
Annex C
Statements of Principle and Code of Practice for Approved Persons (APER)
Annex D
Fit and Proper test for Approved Persons (FIT) Annex E General Provisions (GEN) Annex F Fees manual (FEES) Annex G Prudential sourcebook for Investment Firms (IFPRU) Annex H Interim Prudential sourcebook for Investment Businesses (IPRU (INV))
Annex I
Conduct of Business sourcebook (COBS) Annex J Insurance: Conduct of Business sourcebook (ICOBS) Annex K Market Conduct sourcebook (MAR) Annex L Supervision manual (SUP) Annex M Decision Procedure and Penalties manual (DEPP) Annex N Consumer Credit sourcebook (CONC) Annex O Recognised Investment Exchanges sourcebook (REC) Annex P Amendments to material outside the Handbook E. The Service Companies Handbook Guide (SERV) is amended in accordance with
Annex Q to this instrument.
F. The Enforcement Guide (EG) is amended in accordance with Annex R to this instrument. Notes G. In the Annex to this instrument, the notes (indicated by “Note:”) are included for the convenience of readers but do not form part of the legislative text. European Union Legislation H. Although European Union legislation is reproduced in this instrument, only European Union legislation reproduced in the Official Journal of the European Union is deemed authentic.

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Citation
I. This instrument may be cited as the Markets and Organisational Requirements
(MiFID 2) Instrument 2017.
By order of the Board
[date] 2017

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Annex A
Amendments to the Glossary of definitions In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated.
Part 1: Comes into force on 3 July 2017
Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. markets data (other than transaction reports) (in relation to FEES 3) data that must be reported to the FCA under:
(a) articles 22 and 27 of MiFIR; and
(b) article 58 of MiFID. market data processor system (in relation to FEES 3) the IT system set up and maintained by the FCA to receive data under MiFID and MiFIR. MiFI Regulations the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (SI 2017/xx). Amend the following as shown. transaction report (1) a report of a transaction which meets the requirements of SUP 17.4.1EU.1R and SUP 17.4.2R (Information to appear in transaction reports). (2) (in relation to FEES 3) a report which meets the requirements imposed by and under article 26 of MiFIR.
Part 2: Comes into force on 3 January 2018
Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. algorithmic trading trading in financial instruments which meets the following conditions:
(a) where a computer algorithm automatically determines individual parameters of orders such as whether to initiate the order, the

FCA 2017/xx timing, price or quantity of the order for how to manage the order after its submission; and (b) there is limited or no human intervention; but does not include any system that is only used for the purpose of routing orders to one or more trading venues or the processing of orders involving no determination of any trading parameters or for the confirmation of orders or the post-trade processing of executed transactions. [Note: article 4(1)(39) of MiFID] APA approved publication arrangement. approved publication arrangement a person permitted under regulation 5 of the DRS Regulations to provide services to an investment firm for the investment firm to meet its obligations under articles 20 and 21 of MiFIR. ARM approved reporting mechanism. branch passport notification a notification made in accordance with article 35(2) of MiFID and MiFID ITS 4A Annex VI. certificates (as defined in article 2(1)(27) of MiFIR), those securities which are negotiable on the capital market and which in case of a repayment of investment by the issuer are ranked above shares but below unsecured bond instruments and other similar instruments. central competent authority (in MAR 10) in respect of a particular commodity derivative traded in significant volumes on trading venues in more than one EEA jurisdiction, the competent authority of the trading venue where the largest volume of trading in the commodity derivative takes place in the EEA. commodity derivative those financial instruments defined in:
(a) point (44)(c) of article 4(1) of MiFID which relate to a commodity; or an underlying referred to in Section C(10) of
Annex I of MiFID; or
(b) in points (5), (6), (7) and (10) of Section C of Annex I to MiFID. [Note: article 2(1)(30) of MiFIR] consolidated tape provider a person permitted under regulation 5 of the DRS Regulations to provide the service of:
(a) collecting trade reports for financial instruments made in accordance with articles 6, 7, 10, 12, 13, 20 and 21 of MiFIR

FCA 2017/xx from regulated markets, MTFs, OTFs and APAs; and (b) consolidating them into a continuous electronic live data stream providing price and volume data per financial instrument. CSDR Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the EU and on central securities depositories and amending the Settlement Finality Directive and MiFID and the short selling regulation. CTP consolidated tape provider. DEA direct electronic access. direct electronic access an arrangement where a member or participant or client of a trading venue permits a person to use its trading code so the person can electronically transmit orders relating to a financial instrument directly to the trading venue and includes arrangements which involve the use by a person of the infrastructure of the member or participant or client, or any connecting system provided by the member or participant or client, to transmit the orders (direct market access) and arrangements where such an infrastructure is not used by a person (sponsored access). [Note: article 4(1)(41) of MiFID] economically equivalent OTC contract (1) in respect of a commodity derivative traded on a trading venue, an OTC derivative which has identical contractual specifications and terms and conditions, excluding the following, to those of that commodity derivative:
(a) different lot size specifications;
(b) delivery dates diverging by less than one calendar day; and (c) different post-trade risk management arrangements; and (2) in respect of an emission allowance traded on a trading venue, a contract which has identical contractual specifications and terms and conditions, excluding the following, to those of that emission allowance:
(a) different lot size specifications;
(b) delivery dates diverging by less than one calendar day; and (c) different post-trade risk management arrangements. [Note: article 6 of MiFID RTS 21]

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Emission
Allowance Trading
Directive
Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community, and amending Council Directive 96/61/EC. ETF exchange-traded fund. EU regulation a regulation made pursuant to article 288 of the Treaty. exchange-traded fund a fund of which at least one unit or share class is traded throughout the day on at least one trading venue and with at least one market maker which takes action to ensure that the price of its units or shares on the trading venue does not vary significantly from its net asset value and, where applicable, from its indicative net asset value. [Note: article 4(1)(46) of MiFID] FCA MDP onboarding application form a form for approval to connect to the FCA’s market data processor system. investment advice the provision of personal recommendations to a client, either upon the client’s request or at the initiative of the firm, in respect of one or more transactions relating to designated investments. investment services and activities passport notification a notification made in accordance with article 34(2) of MiFID and MiFID ITS 4 Annex I. market interface specification a document setting out the technical details required to format and submit market data to the FCA using the market data processor system. market making strategy a strategy undertaken by a person where:
(a) the person is a member or participant of one or more trading venues; (b) the person’s strategy, when dealing on own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a trading venue, or across different trading venues; and (c) the result provides liquidity on a regular and frequent basis to the overall market. matched principal trading a transaction where the facilitator interposes itself between the buyer and the seller to the transaction in such a way that it is never itself exposed to market risk throughout the execution of the transaction, with both sides executed simultaneously, and where the transaction is

FCA 2017/xx concluded at a price where the facilitator makes no profit or loss, other than a previously disclosed commission, fee or charge for the transaction. [Note: article 4 (1)(38) of MiFID] member of the management body (in relation to a UK recognised body) any one of the following:
(a) its chairman or president; or
(b) its chief executive; or
(c) a member of its governing body; or
(d) a person who, alone or jointly with one or more others, is responsible under the immediate authority of a person in (a), (b) or (c) or a committee of the governing body for the conduct of any relevant function. MiFI Regulations the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (SI 2017/xx). MiFID/MiFIR requirements any of the requirements applicable to an RIE or an applicant to become an RIE imposed by MiFIR and any directly applicable regulation made under MiFID or MiFIR. MiFID/MiFIR Systems Regulations MiFID RTS 7 to MiFID RTS 12 inclusive, MiFID RTS 25 and MiFID RTS 26. MiFID ITS 2 Commission Implementing Regulation (EU) No […/…] laying down implementing technical standards with regard to the format and timing of the communication and publication of the suspension and removal of financial instruments from trading on a regulated market, an MTF or an OTF according to MiFID. MiFID ITS 3 Commission Implementing Regulation (EU) No […/…] laying down implementing technical standards with regard to the standard forms, templates and procedures for the authorisation of data reporting services providers and related notifications according to MiFID. MiFID ITS 4 Commission Implementing Regulation (EU) No […/…] laying down implementing technical standards with regard to the format of position reports by investment firms and market operators. MiFID ITS 4A Commission Implementing Regulation (EU) No […/…] laying down implementing technical standards with regard to standard forms, templates and procedures for the transmission of information in accordance with MiFID. MiFID ITS 5 Commission Implementing Regulation (EU) No […/…] laying down implementing technical standards with regard to the format and the

FCA 2017/xx timing of position reports by investment firms and market operators of trading venues according to MiFID of the European Parliament and of the Council on markets in financial instruments. MiFID ITS 19 Commission Implementing Regulation (EU) […/…] of 24 May 2016 laying down implementing technical standards with regard to the content and format of the description of the functioning of MTFs and OTFs and the notification to ESMA according to MiFID. MiFID optional exemption firm a firm that complies with regulation 5(9) of the MiFI Regulations. MiFID Org Regulation Commission Delegated Regulation (EU) [xxx/xxx] of 25 April 2016 supplementing MiFID of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (https://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-2398- EN-F1-1.PDF). MiFID RTS 1 Commission Delegated Regulation (EU) […/…] of 14 July 2016 supplementing MiFIR with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments and the obligation for investment firms to execute transactions in certain shares on a trading venue or a systematic internaliser. MiFID RTS 2 Commission Delegated Regulation (EU) No […/…] of 14 July 2016 supplementing MiFIR with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives. MiFID RTS 3 Commission Delegated Regulation (EU) No […/…] of 13 June 2016 supplementing MiFIR with regard to regulatory technical standards on the volume cap mechanism and the provision of information for the purposes of transparency and other calculations. MiFID RTS 3A Commission Delegated Regulation (EU) No […/…] of [date] supplementing MiFID with regard to regulatory technical standards specifying information to be notified by investment firms, market operators and credit institutions. MiFID RTS 6 Commission Delegated Regulation (EU) No […/…] of 19 July 2016 supplementing MiFID with regard to regulatory technical standards specifying the organisational requirements of investment firms engaged in algorithmic trading, providing direct electronic access and acting as general clearing members. MiFID RTS 7 Commission Delegated Regulation (EU) […/…] of 14 July 2016 supplementing MiFID with regard to regulatory technical standards

FCA 2017/xx specifying organisational requirements of regulated markets, multilateral trading facilities and organised trading facilities enabling or allowing algorithmic trading through their systems. MiFID RTS 8 Commission Delegated Regulation (EU) […/…] of 13 June 2016 supplementing MiFID with regard to regulatory technical standards specifying the requirements on market making agreements and schemes. MiFID RTS 9 Commission Delegated Regulation (EU) No […/…] of 18 May 2016 supplementing MiFID with regard to regulatory technical standards on the ratio of unexecuted orders to transactions. MiFID RTS 10 Commission Delegated Regulation (EU) […/…] of 6 June 2016 supplementing MiFID with regard to regulatory technical standards on requirements to ensure fair and non-discriminatory co-location and fee structures. MiFID RTS 11 Commission Delegated Regulation (EU) […/…] of 14 July 2016 supplementing MiFID with regard to regulatory technical standards on the tick size regime for shares, depositary receipts and exchange traded funds. MiFID RTS 12 Commission Delegated Regulation (EU) No […/…] of 26 May 2016 supplementing MiFID with regard to regulatory technical standards on the determination of a material market in terms of liquidity relating to trading halt notifications. MiFID RTS 13 Commission Delegated Regulation (EU) No […/…] of 2 June 2016 supplementing MiFID with regard to regulatory technical standards on the authorisation, organisational requirements and the publication of transactions for data reporting services providers. MiFID RTS 14 Commission Delegated Regulation (EU) No […/…] of 2 June 2016 supplementing MiFIR with regard to regulatory technical standards on the specification of the offering of pre-trade and post-trade data and the level of disaggregation. MiFID RTS 17 Commission Delegated Regulation (EU) No […/…] of 24 May 2016 supplementing MiFID with regard to regulatory technical standards for the admission of financial instruments to trading on regulated markets. MiFID RTS 18 Commission Delegated Regulation (EU) No […/…] of 24 May 2016 supplementing MiFID with regard to regulatory technical standards for the suspension and removal of financial instruments from trading. MiFID RTS 21 Commission Delegated Regulation (EU) No […/…] of 1 December 2016 supplementing MiFID with regard to regulatory technical standards for the application of position limits to commodity derivatives.

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MiFID RTS 22 Commission Delegated Regulation (EU) […/…] of 28 July 2016 supplementing MiFIR with regard to regulatory technical standards for the reporting of transactions to competent authorities. MiFID RTS 23 Commission Delegated Regulation (EU) No […/…] of 14 July 2016 supplementing MiFIR with regard to regulatory technical standards for the data standards and formats for financial instrument reference data and technical measures in relation to arrangements to be made by the European Securities and Markets Authority and competent authorities. MiFID RTS 25 Commission Delegated Regulation (EU) […/…] of 7 June 2016 supplementing MiFID with regard to regulatory technical standards for the level of accuracy of business clocks. MiFID RTS 26 Commission Delegated Regulation (EU) […/…] of 29 June 2016 supplementing MiFIR with regard to regulatory technical standards specifying the obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing. MiFID RTS 27 Commission Delegated Regulation (EU) […/…] of 8 June 2016 supplementing MiFID with regard to regulatory technical standards for the data to be provided by execution venues on the quality of execution of transactions. MiFID RTS 28 Commission Delegated Regulation (EU) […/…] of 8 July 2016 supplementing MiFID with regard to regulatory technical standards for the annual publication by investment firms of information on the identity of execution venues and on the quality of execution. MiFIR Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012. MiFIR Delegated Regulation Commission Delegated Regulation (EU) [xxx/xxx] of 18 May 2016 supplementing Regulation (EU) No 600/2014 of European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions (http://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-2860- EN-F1-1.PDF). MIS market interface specification. MIS confidentiality agreement an agreement between the FCA and a party receiving information regarding the market data processor system market interface specification. multilateral system any system or facility in which multiple third-party buying and selling trading interests in financial instruments are able to interact in the system.

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[Note: article 4(1)(19) of MiFID] non-financial entity a natural or legal person other than:
(a) an investment firm authorised in accordance with MIFID; (b) a CRD credit institution; (c) an insurance undertaking authorised in accordance with Directive 73/239/EEC; (d) an assurance undertaking authorised in accordance with Directive 2002/83/EC of the European Parliament and of the Council; (e) a reinsurance undertaking authorised in accordance with Directive 2005/68/EC of the European Parliament and of the Council; (f) a UCITS and, where relevant, its management company, authorised in accordance with the UCITS Directive; (g) an institution for occupational retirement provision within the meaning of article 6(a) of Directive 2003/41/EC of the European Parliament and of the Council; (h) an alternative investment fund managed by AIFMs authorised or registered in accordance with the AIFMD; (i) a CCP authorised in accordance with EMIR; and (j) a central securities depositary authorised in accordance with CDSR. [Note: article 2 of MiFID RTS 21] reportable financial instrument in SUP 17A, those financial instruments in article 26(2) of MiFIR, namely:
(a) financial instruments which are admitted to trading or are traded on a trading venue for which a request for admission to trading has been made; (b) financial instruments where the underlying is a financial instrument traded on a trading venue; and (c) financial instruments where the underlying is an index or a basket composed of financial instruments traded on a trading venue. Securities Financing Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing

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Transactions
Regulation transactions and of reuse and amending Regulation (EU) No 648/2012 (http://data.europa.eu/eli/reg/2015/2365/oj). SME growth market a multilateral trading facility that is registered as an SME growth market in accordance with article 33 of MiFID. [Note: article 4(1)(12) of MiFID] sovereign debt a debt instrument issued by a sovereign issuer. [Note: article 4 (1)(61) of MiFID] structured deposit regulated activities any of the following activities, specified in Part II of the Regulated Activities Order (Specified Activities), which is carried on by way of business in relation to structured deposits:
(a) dealing in investments as agent;
(b) arranging (bringing about) deals in investments; (c) making arrangements with a view to transactions in investments; (d) managing investments; and (e) advising on investments (except P2P agreements). structured finance products (as defined in article 2(1)(28) of MiFIR) those securities created to securitise and transfer credit risk associated with a pool of financial assets entitling the security holder to receive regular payments that depend on the cash flow from the underlying assets. [Note: article 4(1)(48) of MiFID] third country firm (in SYSC) either:
(a) a third country investment firm; or
(b) the UK branch of a non-EEA bank. tied agent passport notification a notification made in accordance with article 35(2) of MiFID and MiFID ITS 4 Annex VII. Amend the following as shown. advising on investments (except P2P agreements) the regulated activity, specified in article 53(1) of the Regulated Activities Order (Advising on investments), which is in summary; advising a person if the advice is:
…

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(2) advice on the merits of their doing any of the following (whether as principal or agent):
(a) buying, selling, subscribing for or underwriting a particular investment which is a security or relevant investment (that is, any designated investment (other than a P2P agreement), funeral plan contract, pure protection contract, general insurance contract or, right to or interests in a funeral plan contract or structured deposit); or … ancillary service (1) (except in CONC) any of the services listed in Section B of
Annex I to MiFID, that is:
(a) safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management but excluding maintaining securities accounts at the top tier level, (‘central maintenance service’) referred to in point 2 of
Section A of the Annex to CSDR;
… approved reporting mechanism a trade-matching or reporting system approved by the FCA in accordance with Section 412A of the Act a person permitted under regulation 5 of the DRS Regulations to provide services to an investment firm in order for it to meet its obligations under article 26 of MiFIR. arranging (bringing about) deals in investments the regulated activity, specified in article 25(1) of the Regulated Activities Order, which is in summary: making arrangements for another person (whether as principal or agent) to buy, sell, subscribe for or underwrite a particular investment which is:
…
(e) rights to or interests in investments in (b), (c) or (d) ; or (f) a structured deposit. branch … (b) (in relation to an investment firm):
(i) a place of business other than the head office which is a
part of an investment firm, which has no legal personality
and which provides investment services and/or activities and which may also perform ancillary services for which the firm has been authorized authorised; (ii) all the places of business set up in the same EEA State by

FCA 2017/xx an investment firm with headquarters in another EEA State are regarded as a single branch; [Note: article 4(1)(26) 4(1)(30) of MiFID] CAD investment firm a firm that is subject to the requirements imposed by MiFID (or which would be subject to that Directive if its head office were in an EEA State) but excluding a bank, a building society, a credit institution, a local firm and an exempt CAD firm that meets the following conditions:
… commodity (1) (except for (2) and (3)) a physical asset (other than a financial instrument or cash) which is capable of delivery. (2) (for the purpose of calculating position risk requirements) any of the following (but excluding gold):
(a) a commodity within the meaning of paragraph (1); and (b) any:
(i) physical or energy product; or
(ii) of the items referred to in paragraph 10 of Section C of Annex 1 of the MiFID as an underlying with respect to the derivatives mentioned in that paragraph; which is, or can be, traded on a secondary market. (3) (in relation to the MiFID Regulation, including the definitions of a financial instrument and an ancillary service) (in relation to MiFID or MiFIR) any goods of a fungible nature that are capable of being delivered, including metals and their ores and alloys, agricultural products, and energy such as electricity, not including services or other items that are not goods, such as currencies or rights in real estate, or that are entirely intangible. [Note: article 2(1) of the MiFID Org Regulation article 2(6) of the MiFID Org Regulation] common platform firm … (c) a UK MiFID investment firm which falls within the definition of 'local firm' in Article 3.1P of the Capital Adequacy Directive
article 4(1)(4) of the EU CRR; or
… common platform (1) SYSC 4 to SYSC 9; and

FCA 2017/xx organisational requirements (2) those articles of the MiFID Org Regulation as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2- AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R. common platform record-keeping requirements the record-keeping requirements applicable to common platform firms set out in (in relation to common platform firms) the following:
(1) SYSC 9; and
(2) those articles of the MiFID Org Regulation as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2- AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R. common platform requirements (1) SYSC 4 to SYSC 10; and (2) those articles of the MiFID Org Regulation as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2- AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R. competent authority … (4) the authority, designated by each EEA State in accordance with
Article 48 article 67 of MiFID, unless otherwise specified in
MiFID.
[Note: article 4(1)(22) article 4(1)(26) of MiFID] … [Note: This definition is based on the definition contained in the CRD (Consequential Amendments) Instrument 2006 which was consulted on in the consultation paper Strengthening Capital Standards 2 (CP 06/3)] competent employees rule (a) for an insurer, a managing agent and the Society, SYSC 3.1.6R; (b) for a common platform firm, SYSC 5.1.1R article 21(1)(d) of the MiFID Org Regulation that applies in accordance with SYSC 1
Annex 1 2.8R and SYSC 1 Annex 1 2.8AR;
(ba) for a MiFID optional exemption firm and a third country firm,
article 21(1)(d) of the MiFID Org Regulation that applies in
accordance with SYSC 1 Annex 1 2.8R, SYSC 1 Annex 1 2.8AR and SYSC 1 Annex 1 3.2CR; and (c) for every other firm, SYSC 5.1.1R (where it applies). conflicts of interest policy (1) (except in MAR 8) the policy established and maintained in accordance with SYSC 10.1.10R; and

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(2) (in MAR 8) the policy established and maintained in accordance with MAR 8.2.8G which:
(a) identifies circumstances that constitute, or may give rise to, a conflict of interest arising from benchmark submissions and the process of gathering information in order to make benchmark submissions,; and (b) sets out the process to manage such conflicts. control (1) (except in (2) and (2A)) (in relation to the acquisition, increase or reduction of control of a firm) the relationship between a person and the firm or other undertaking of which the person is a controller. (2) (in SYSC 8 and SYSC 10) control as defined in Article 1 of the Seventh Council Directive 83/349/EEC (The Seventh Company Law Directive). :
(a) the relationship between a parent undertaking and a subsidiary, in all cases referred to in articles 22(1) and (2) of the Accounting Directive; or (b) a similar relationship between any natural or legal person and an undertaking. [Note: article 4 (1)(30) 4(1)(35)(b) of MiFID] … customer (A) … (B) in the FCA Handbook:
(1) (except in relation to ICOBS, a credit-related regulated activity, MCOB 3A, an MCD credit agreement and , CASS 5 and PRIN in relation to MiFID or equivalent third country business) a client who is not an eligible counterparty for the relevant purposes. … (6) (for the purposes of PRIN in relation to MiFID or equivalent third county business) has the meaning given in COBS 3.2. data reporting service (in relation to FEES 1, FEES 2 and FEES 3) (in accordance with regulation 2(1) of the DRS Regulations) the operation of an APA, an ARM or a CTP when carried out as a regular occupation or business activity.

FCA 2017/xx data reporting services provider (in relation to FEES 1, FEES 2 and FEES 3) a person operating one or more data reporting service. dealing in investments as agent the regulated activity, specified in article 21 of the Regulated Activities Order (Dealing in investments as agent), which is in summary: buying, selling, subscribing for or underwriting designated investments (other than P2P agreements), pure protection contracts or, general insurance contracts or structured deposits as agent. derivative (1) (other than in REC, MAR 5 and MAR 5A) a contract for differences, a future or an option (see also securitised derivative). (2) (in REC, MAR 5 and MAR 5A) has the meaning in article 2(1)(29) of MiFIR. designated investment (1) a security or a contractually-based investment (other than a funeral plan contract and a right to or interest in a funeral plan contract), that is, any of the following investments, specified in
Part III of the Regulated Activities Order (Specified Investments):
…
(h) stakeholder pension scheme (article 82(1)); (ha) … (hb) emissions auction product (article 82A) where it is a financial instrument; (hc) emissions allowance (article 82B); … … designated investment business any of the following activities, specified in Part II of the Regulated Activities Order (Specified Activities), which is carried on by way of business:
…
(da) …
(daa) operating an organised trading facility (article 25DA); … DRS Regulations (in relation to FEES 1, FEES 2 and FEES 3) the Data Reporting Services Regulations 2017 (SI 2017/[xxxx]). emissions emission allowance (1) an 'allowance', within the meaning of article 3(a) of Directive 2003/87/EC of the European Parliament and of the Council of 13

FCA 2017/xx
October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC the Emission Allowance Trading Directive; (2) (in relation to MiFID business other than in MAR 10 (Commodity derivative position limits and controls and position reporting)) the investment, specified in article 82B of the Regulated Activities Order (‘Emission Allowances’), which is in summary emission allowances: allowances:
(a) consisting of any units recognised for compliance with the Emission Allowance Trading Directive; and (b) to which article 82B of the Regulated Activities Order applies; and (3) (in MAR 10 (Commodity derivative position limits and controls and position reporting)):
(a) an allowance consisting of any units recognised for compliance with Directive 2003/87/EC (Emission Trading Scheme), as specified in paragraph (11) of Section C of
Annex I of MiFID; or
(b) any derivative of such an allowance, whether falling under paragraph (4) or (10) of Section C of Annex I of MiFID. execution of orders on behalf of clients acting to conclude agreements to buy or sell one or more financial instruments on behalf of clients including the conclusion of agreements to sell financial instruments issued by an investment firm or a credit institution at the moment of their issuance. [Note: article 4(1)(5) of MiFID] exempt CAD firm (1) (except in SYSC and IPRU(INV)) a firm as defined in article 4(1)(2)(c) of the EU CRR that is authorised to provide only one or more of the following investment services:
(a) investment advice;
(b) receive and transmit orders from investors as referred to in
Section A of Annex I of MiFID).
(2) (in SYSC and IPRU(INV)) a firm in (1) whose head office (or, if it has a registered office, that office) is in the United Kingdom United Kingdom. financial instrument (1) (other than in (2) and (3) and (4)) instruments specified in Section C of Annex I of MiFID, that is:
…

FCA 2017/xx
(d) options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances, or other derivative instruments, financial indices or financial measures which may be settled physically or in cash; (da) (in relation to derivative contracts relating to a currency) has the meaning in article 10 [link] of the MiFID Org Regulation) (in summary):
(i) an instrument which is not a contract within the meaning of paragraph 2 of that article; or (ii) a means of payment as described in paragraph 1(b) of that article; (e) options, futures, swaps, forward rate agreements forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise other than by reason of a default or other termination event); (f) options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or , an MTF, or an OTF, except for wholesale energy products (having regard to article 6 of the MiFID Org Regulation) traded on an OTF that must be physically settled where the conditions of article 5 of the MiFID Org Regulation are met; (g) options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in (f) and :
(i) not being for commercial purposes , having regard to article 7(4) of the MiFID Org Regulation; (ii) which have the characteristics of other derivative financial instruments , having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls (see articles 38(1), (2) and (4) of the MiFID Regulation) having regard to article 7(1) of the MiFID Org Regulation; and (iii) not being spot contracts having regard to articles 7 (1) and (2) of the MiFID Org Regulation; …

FCA 2017/xx
(j) options, futures, swaps, forward rate agreements and any other derivative contracts relating to:
…
(xii) a derivative contract to which article 8 of the MiFID Org Regulation applies; where the conditions in Articles 38 articles 7(3) and (4) of the MiFID Regulation MiFID Org Regulation are met .; [Note: article 4(1)(17) 4(1)(15) and section C of Annex I to MiFID and articles 38 and 39 of the MiFID Regulation articles 7 and 8 of the MiFID Org Regulation] (k) emission allowances consisting of any units recognised for compliance with the Emission Allowance Trading Directive; … firm … (8) (in SYSC 18, with the exception of the guidance guidance in SYSC 18.3.9G):
…
(9) (in FEES 4) includes a recognised investment exchange and a data reporting services provider in accordance with FEES 4.1.1AR. Home State … (2) (in relation to an investment firm):
…
[Note: article 4(1)(20) 4(1)(55)(a) of MiFID] … (16) (a data reporting services provider):
(a) the EEA State in which its head office is situated, for a natural person; (b) the EEA State in which its registered office is situated, for a legal person; (c) if the data reporting services provider has, under its national law, no registered office, the EEA State in which its head

FCA 2017/xx office is situated.
[Note: article 4(1)(55)(c) of MiFID]
Home State regulator
…
(4) (in REC) the competent authority (within the meaning of Article (4)(1)(22) article 4(1)(26) of MiFID) of the EEA State which is the Home State in relation to the EEA market operator concerned. … (6) (for a data reporting services provider) the competent authority (within the meaning of article 4(1)(26) of MiFID) of the EEA State which is the Home State for that data reporting services provider. Host State … (3) (in relation to MiFID investment firms) the EEA State, other than the Home State, in which an investment firm has a branch or performs provides investment services and/or activities , or the EEA State in which a regulated market provides appropriate arrangements so as to facilitate access to trading on its system by remote members or participants established in that same EEA State. [Note: article 4(1)(56) of MiFID] … IFPRU 125K firm has the meaning in IFPRU 1.1.9R (Types of investment firm: IFPRU 125K firm), which in summary is an IFPRU investment firm that satisfies the following conditions:
…
(e) it does not operate a multilateral trading facility or an organised trading facility. IFPRU 50K firm has the meaning in IFPRU 1.1.10R (Types of investment firm: IFPRU 50K firm) which in summary is an IFPRU investment firm that satisfies the following conditions:
…
(d) it does not operate a multilateral trading facility or an organised trading facility. incoming data reporting services provider (in relation to FEES 1, FEES 2 and FEES 3) a data reporting services provider authorised or applying for authorisation under Title V of MiFID II in an EEA State, other than the UK, to provide a data reporting service in the UK.

FCA 2017/xx investment service any of the following involving the provision of a service in relation to a financial instrument:
…
(h) operation of multilateral trading facilities an MTF; and (i) operation of an OTF. … investment services and/or activities any of the services and activities listed in Section A of Annex I to MiFID relating to any financial instrument, that is:
…
(h) operation of multilateral trading facilities; and (i) operation of an OTF. … investment services or activities any of the services and activities listed in Section A of Annex I to MiFID relating to any financial instrument, that is:
…
(h) operation of multilateral trading facilities an MTF; and (i) operation of an OTF. … issuer … [Note: article 2(2) of the MiFID Regulation] … local firm a firm which falls within the definition of "local firm" in Article 3.1P of CAD, that is a firm dealing for its own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets, or dealing for the accounts of other members of those markets and being guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such a firm is assumed by clearing members of the same markets has the meaning in article 4(1)(4) of the EU CRR. making arrangements with a view to the regulated activity, specified in article 25(2) of the Regulated Activities Order (Arranging deals in investments), which is in summary: making arrangements with a view to a person who participates in the

FCA 2017/xx transactions in investments arrangements buying, selling, subscribing for or underwriting any of the following investments (whether as principal or agent):
…
(g) general insurance contract; or
(h) a structured deposit. management body (1) (other than in (2)) (in accordance with article 3(7) of CRD and
article 4.1(36) of MiFID) the governing body and senior personnel
of a CRR firm who are empowered to set the firm’s person’s strategy, objectives and overall direction, and which oversee and monitor management decision-making in the following:
(a) a common platform firm (in relation to the requirements imposed by or under MiFID or MiFIR); or (b) a recognised investment exchange; or (c) a data reporting services provider. … managing investments the regulated activity specified in article 37of the Regulated Activities Order (Managing investments), which is in summary: managing assets belonging to another person in circumstances which involve the exercise of discretion, if:
(a) the assets consist of or include any security or contractually based investment (that is, any designated investment (other than a P2P agreement), funeral plan contract, structured deposit or right to or interest in a funeral plan contract); or … market data processor system (in relation to FEES 3) the IT system set up and maintained by the FCA to receive data under MiFID and MiFIR. markets data (other than transaction reports) (in relation to FEES 3) data that must be reported to the FCA under:
(a) articles 22 and 27 of MiFIR; and
(b) article 58 of MiFID. market maker …
[Note: article 4(1)(8) 4(1)(7) of MiFID and article 11 of the MiFID Org Regulation] …

FCA 2017/xx market operator a person who manages and/or operates the business of a regulated market. The market operator and who may be the regulated market itself. [Note: article 4(1)(13) (4)(1)(18) of MiFID] MiFID The European Parliament and Council Directive on markets in financial instruments (No. 2004/39/EC). See also MiFID Regulation and MIFID implementing Directive Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending the insurance mediation directive and AIFMD. MiFID investment firm (1) (in summary) (except in SUP 13, SUP 13A and SUP 14 in relation to notification of passported activity) a firm to which MiFID applies including, for some purposes only, a credit institution and collective portfolio management investment firm. (2) (in full) a firm (except in SUP 13, SUP 13A and SUP 14 in relation to notification of passported activity) which is:
(1)
(a) an investment firm with its head office in the EEA (or, if it has a registered office, that office); (2) (b) a CRD credit institution (only when providing an investment service or activity or when selling, or advising clients in relation to, structured deposits in relation to for the purposes of:
(i) the rules implementing the Articles articles referred to in article 1(2) article 1(3) and article 1(4) of MiFID ; (ii) the requirements imposed upon it by and under MiFIR; and (iii) the requirements imposed upon it by EU regulations made under MiFID); (3) (c) a collective portfolio management investment firm (only when providing the services referred to in article 6(4) AIFMD or Article article 6(3) of the UCITS Directive in relation to the rules implementing the articles of MIFID referred to in article 6(6) of AIFMD or article 6(4) of the UCITS Directive and for a full-scope UK AIFM or the rules implementing article 12(2)(b) of AIFMD); unless, and to the extent that, MiFID does not apply to it as a result of Article article 2 (Exemptions) or Article article 3 (Optional exemptions) of MiFID. (3) (in SUP 13, SUP 13A and SUP 14 in relation to notification of

FCA 2017/xx passported activity) an investment firm with its head office in the EEA (or, if it has a registered office, that office) unless, and to the extent that, MiFID does not apply to it as a result of article 2 (Exemptions) or article 3 (Optional exemptions) of MiFID. multilateral trading facility a multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract in accordance with the provisions of Title II of MiFID. [Note: article 4(1)(15) 4(1)(22) of MiFID] operating a multilateral trading facility … In this definition “MiFID instrument” means any investment:
(a) of the kind specified by articles 76, 77, 78, 79, 80, 81, 82B, 83, 84 or 85 of the Regulated Activities Order; or (b) of the kind specified by article 89 of the Regulated Activities Order, so far as relevant to an investment falling within (a),; that is a financial instrument. operating an organised trading facility (in relation to FEES 3), the regulated activity in article [25DA] of the Regulated Activities Order, which is in summary, the operation of an organised trading facility on which non-equity MiFID instruments are traded. In this definition “non-equity MiFID instrument” means any investment:
(a) of the kind specified by articles 77, 77A, 78, 79, 80, 81, 82B, 83, 84 or 85; or (b) of the kind specified by article 89 of the Regulated Activities Order, so far as relevant to an investment falling within (a); that is a bond, a structured finance product (within the meaning of article 2(1)(28) of MiFIR), an emissions allowance, or a derivative (within the meaning of article 2(1)(29) of MiFIR). option the investment, specified in article 83 of the Regulated Activities Order (Options), which is in summary an option to acquire or dispose of:
… organised trading facility
(in relation to FEES 3), (in accordance with article 3(1) of the Regulated Activities Order):
(a) an organised trading facility (within the meaning of article 4(1)(23) of MiFID II) operated by an investment firm, a credit institution or a market operator; or

FCA 2017/xx
(b) a facility which:
(i) is operated by an investment firm, a credit institution or a market operator which does not have a Home State; and (ii) if its operator had a Home State, would be an organised trading facility within the meaning of article 4(1)(23) of MiFID II. [Note: article 4(1)(23) of MiFID II] OTF (in relation to FEES 3), organised trading facility. outsourcing … (2) (in SYSC 8, COBS 11.7, SYSC 3 and SYSC 13 to the extent applicable to the Solvency II firm, and the definition of relevant person) an arrangement of any form between a firm and a service provider by which that service provider performs a process, a service or an activity which would otherwise be undertaken by the firm itself. [Note: article 2(6) of the MiFID implementing Directive article 2(3) of the MiFID Org Regulation and article 13(28) of the Solvency II Directive] overseas firm (1) (in relation to MAR 5 and MAR 5A) a firm which has its registered office (or, if it has no registered office, its head office) outside the United Kingdom excluding an incoming EEA firm. (2) (in any other case) a firm which has its registered office (or, if it has no registered office, its head office) outside the United Kingdom. personal transaction … [Note: article 2(7) and article 11 of the MiFID implementing Directive
article 16(2) of MiFID and article 28 of the MiFID Org Regulation]
portfolio management managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis where such portfolios include one or more financial instruments. [Note: article 4(1)(9) 4(1)(8) of MiFID] qualifying holding … (2) (otherwise) any a direct or indirect holding in an investment firm which represents 10% or more of the capital or of the voting rights, as set out in Article 92 articles 9 and 10 of the European Parliament and Council Directive on the admission of securities to official stock exchange listing and on information to be published

FCA 2017/xx on those securities (No. 2001/34/EC) Transparency Directive, taking into account the conditions regarding aggregation in article 12(4) and (5) of that Directive, or which makes it possible to exercise a significant influence over the management of the investment firm in which that holding subsists. [Note: article 4(1)(27) 4(1)(31) of MiFID] RAP recognition requirements (1) (in relation to an RAP) any of the requirements applicable to an RAP under the RAP regulations, the auction regulation or the MiFID Regulation MiFIR and any EU regulation adopted under MiFID or MiFIR. (2) (in relation to a UK RIE applying for recognition as an RAP) any of the requirements under the RAP regulations, the auction regulation or the MiFID Regulation MiFIR and any EU regulation adopted under MiFID or MiFIR which, if its application were successful, would apply to it. recognised body requirements … (2) (in relation to a UK RIE) the MiFID implementing requirements MiFID/MiFIR requirements; … regulated market (1) a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments – in the system and in accordance with its nondiscretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title III of MiFID. [Note: article 4(1)(14) 4(1)(21) of MiFID] … regulatory system the arrangements for regulating a firm or other person in or under the Act, including the threshold conditions, the Principles and other rules, the Statements of Principle, codes and guidance, or in or under the CCA, and including any relevant directly applicable provisions of a Directive or Regulation such as those contained in the MiFID implementing Directive, the MiFID Regulation, MiFID Org Regulation and the EU CRR. relevant person any of the following:
(1) (in COMP) a person for claims against whom the compensation scheme provides cover, as defined in COMP 6.2.1R.;

FCA 2017/xx
(2) (otherwise) any of the following:
…
[Note: article 2(3) of the MiFID implementing Directive article 2(1) of the MiFID Org Regulation and article 3(3) of the UCITS implementing Directive] remuneration (1) (except where (2) applies) any form of remuneration, including salaries, discretionary pension benefits and benefits of any kind. [Note: article 92(2) of the CRD] (2) (in relation to those articles of the MiFID Org Regulation as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1
Annex 1 3.2-AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex 1
3.2CR, SYSC 1 Annex 1 3.3R; SYSC 19F.1.3R; SYSC 19F.1.4R and SYSC 19F.1.5R) all forms of payments or financial or nonfinancial benefits provided directly or indirectly by a firm to relevant persons in the provision of one or more of designated investment business, ancillary activities and ancillary services to clients. [Note: article 2(5) of the MiFID Org Regulation] securities and futures firm … (h) a firm that is exempt from MiFID under article 2(1) (i) (j) whose permitted activities include bidding in emissions auctions. security (1) (except in LR and CONC) (in accordance with article 3(1) of the Regulated Activities Order (Interpretation)) any of the following investments specified in that Order:
…
(gb) emissions allowance (article 82B); and … … senior personnel (1) those persons who effectively direct the business of the firm, or CBTL firm, recognised investment exchange or data reporting services provider which could include a firm’s or CBTL firm’s or the membership of the governing body and other persons individuals who effectively direct the business of the person firm or CBTL firm. (2) (in relation to a management company) and in accordance with
article 3(4) of the UCITS implementing Directive) the person or
persons who effectively conduct the business of the management

FCA 2017/xx company. senior management
(1) …
(2) (in SYSC (except SYSC 4.3A) and IFPRU and in accordance with article 3(9) of CRD) those persons who are a natural person and who exercise executive functions in an institution and who are responsible and accountable to the management body for the day-to-day management of the institution. (3) (in SYSC 4.3A and COBS 2.3B and in accordance with article 4.1(37) of MiFID) those persons who are a natural person, who exercise executive functions in common platform firms and who are responsible and accountable to the management body for the day-to-day management of the firm, including for the implementation of the policies concerning the distribution of services and products to clients by it and its personnel. small and medium-sized enterprise (1) (in MAR 5) companies that had an average market capitalisation of less than €200,000,000 based on end-year quotes for the previous three calendar years. [Note: article 4(1)(13) of MiFID] (2) (in PR) (as defined in Article article 2.1(f) of the prospectus directive) companies, which, according to their last annual or consolidated accounts, meet at least two of the following three criteria: an average number of employees during the financial year of less than 250, a total balance sheet not exceeding €43,000,000 and an annual net turnover not exceeding €50,000,000. structured deposit a deposit paid on terms under which any interest or premium will be paid, or is at risk, according to a formula which involves the performance of:
(a) an index (or combination of indices) (other than money market indices); (b) a stock (or combination of stocks); or (c) a commodity (or combination of commodities). (in accordance with article 3 of the Regulated Activities Order) a deposit which is fully repayable at maturity on terms under which interest or a premium will be paid or is at risk, according to a formula involving factors such as:
(a) an index or combination of indices, excluding variable rate deposits whose return is directly linked to an interest rate index such as EURIBOR or LIBOR; or

FCA 2017/xx
(b) a financial instrument or combination of financial instruments; or (c) a commodity or combination of commodities or other physical or non-physical non-fungible assets; or (d) a foreign exchange rate or combination of foreign exchange rates. [Note: article 4(1)(43) of MiFID] systematic internaliser (has the meaning in article 4(1)(20) of MiFID) (in summary) an investment firm which, on an organised, frequent and, systematic and substantial basis, deals on own account by executing client client orders outside a regulated market or, an MTF or an OTF without operating a multilateral system. [Note: article 4(1)(7) 4(1)(20) of MiFID] tied agent a person who, under the full and unconditional responsibility of only one MiFID investment firm or third country investment firm on whose behalf it acts, promotes investment services and/or ancillary services to clients or prospective clients, receives and transmits instructions or orders from the client in respect of investment services or financial instruments, places financial instruments and/or provides advice to clients or prospective clients in respect of those financial instruments or investment services. [Note: article 4(1)(25) 4(1)(29) of MiFID] third country investment firm a firm which would be a MiFID investment firm if it had its head office or registered office in the EEA. trading venue (1) (except in FINMAR and MAR) a regulated market, an MTF or systematic internaliser acting in its capacity as such, and, where appropriate, a system outside the EU with similar functions to a regulated market or MTF an OTF. [Note: article 2(8) of the MIFID Regulation article 4(1)(24) of MiFID] (2) (in FINMAR) (as defined in article 2(1)(l) of the short selling regulation) a regulated market or an MTF. (3) (in MAR) a regulated market or an MTF. transaction (1) (except in CONC App 1.1 and SUP 17A) only the purchase and sale of a financial instrument. For the purposes of the MiFID Regulation, excluding Chapter II, this does not include:
(a) securities financing transactions; or (b) the exercise of options or covered warrants; or

FCA 2017/xx
(c) primary market transactions (such as issuance allotment or subscription) in financial instruments falling within Article 4(1)(18(a) and (b) of MiFID). (2) (in CONC App 1.3, except in CONC App 1.1.6R(1)(c)) a credit agreement, any transaction which is a linked transaction, any contract for the provision of security relating to the credit agreement, any credit broking contract relating to the credit agreement and any other contract to which the borrower or a relative of his the borrower is a party and which the lender requires to be made or maintained as a condition of the making of the credit agreement. (3) (in SUP 17A), a concluded acquisition or disposal of a reportable financial instrument, including those in articles 2(2) to 2(4) of MiFID RTS 22, but excluding those in article 2(5) of that EU regulation. [Note: article 5 of the MiFID Regulation] transaction report (1) a report of a transaction which meets the requirements of SUP 17.4.1EU.1R and SUP 17.4.2R (Information to appear in transaction reports). (2) in relation to FEES 3, a report which meets the requirements imposed by and under article 26 of MiFIR. a report of a transaction:
(a) for the purposes of SUP TP 9; or
(b) which meets the requirements imposed by and under article 26 of MiFIR. transferable security … (3) those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as:
…
[Note: article 4(1)(18) 4(1)(44) of MiFID] UCITS management company … (2) (in relation to MiFID business) a management company as defined in the UCITS Directive. [Note: article 4 (1)(24) article 4(1)(28) of MiFID] UK designated investment firm (in BIPRU 12 and in SYSC 19D) a designated investment firm which is a body corporate or partnership formed under the law of any part of the

FCA 2017/xx
UK.
Delete the following definitions. The text is not struck through. common platform outsourcing rules SYSC 8.1.1R to SYSC 8.1.12G. key individual (in relation to a UK recognised body):
(a) its chairman or president;
(b) its chief executive;
(c) a member of its governing body;
(d) a person who, alone or jointly with one or more others, is responsible under the immediate authority of a person in (a), (b) or (c) or a committee of the governing body for the conduct of any relevant function. local (1) (except in IFPRU 1.1 (Application and purpose)) a firm which is a member of a futures and options exchange and whose permission includes a requirement that:
(a) the firm will not conduct designated investment business other than:
(i) dealing for its own account on that futures or options exchange; or (ii) dealing for the accounts of other members of the same futures and options exchange; or (iii) making a price to other members of the same futures and options exchange; and (iv) dealing for its own account in financial futures and options or other derivatives in the capacity of a customer; and (b) the performance of the firm’s contracts must be guaranteed by and must be the responsibility of one or more of the clearing members of the same futures and options exchange. (2) [deleted] (3) (in IFPRU 1.1 (Application and purpose) has the meaning given in the definition of “local firm” in article 4(1)(4) of the EU CRR. MiFID II Directive 2014/65/EU of the European Parliament and of the Council of

FCA 2017/xx
15 May 2014 on markets in financial instruments and amending the insurance mediation directive and AIFMD (http://eurlex.europa.eu/legalcontent/EN/TXT/PDF/?url=OJ:JOL_2014_173_R_0009&from=EN). MiFID implementing Directive Commission Directive No. 2006/73/EC implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive. MiFID implementing requirement (1) (in relation to a UK RIE) any of the requirements applicable to that body under the MiFID Regulation. (2) (in relation to a body applying for recognition as a UK RIE) any of the requirements under the MiFID Regulation which, if its application were successful, would apply to it. MiFID outsourcing rules SYSC 8.1.1R to SYSC 8.1.11R.

FCA 2017/xx
Annex B
Amendments to the Principles for Businesses (PRIN) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 1 Introduction
1.1 Application and purpose
…
Purpose
1.1.2 G The Principles are a general statement of the fundamental obligations of
firms under the regulatory system. This includes provisions which implement the Single Market Directives. They derive their authority from the appropriate regulator's FCA’s rule-making powers as set out in the Act and reflect the statutory objectives. … Taking group activities into account
1.1.5 G Principles 3 (Management and control), 4 (Financial prudence) and (in so
far as it relates to disclosing to the appropriate regulator FCA) 11 (Relations with regulators) take into account the activities of members of a firm's group. … Standards in markets outside the United Kingdom
1.1.6 G As set out in PRIN 3.3 (Where?), Principles 1 (Integrity), 2 (Skill, care
and diligence) and 3 (Management and control) apply to world-wide activities in a prudential context. Principle 5 (Market conduct) applies to world-wide activities which might have a negative effect on confidence in the UK financial system. In considering whether to take regulatory action under these Principles in relation to activities carried on outside the United Kingdom, the appropriate regulator FCA will take into account the standards expected in the market in which the firm is operating. Principle 11 (Relations with regulators) applies to world-wide activities; in considering whether to take regulatory action under Principle 11 in relation to cooperation with an overseas regulator, the appropriate regulator FCA will have regard to the extent of, and limits to, the duties owed by the firm to that regulator. (Principle 4 (Financial prudence) also applies to world-wide activities.) … Consequences of breaching the Principles

FCA 2017/xx
1.1.7 G … Under each of the Principles the onus will be on the appropriate
regulator FCA to show that a firm has been at fault in some way. What constitutes "fault" varies between different Principles. Under Principle 1 (Integrity), for example, the appropriate regulator FCA would need to demonstrate a lack of integrity in the conduct of a firm's business … …
1.1.9 G Some of the other rules and guidance in the Handbook deal with the
bearing of the Principles upon particular circumstances. However, since the Principles are also designed as a general statement of regulatory requirements applicable in new or unforeseen situations, and in situations in which there is no need for guidance, the appropriate regulator's FCA’s other rules and guidance or EU regulations should not be viewed as exhausting the implications of the Principles themselves. …
1.2 Clients and the Principles
…
Approach to client categorisation
1.2.2 G Principles 6, 8 and 9 and parts of Principle 7, as qualified by PRIN
3.4.1R, apply only in relation to customers (that is, clients which are not eligible counterparties). The approach that a firm (other than for creditrelated regulated activities in relation to which client categorisation does not apply) needs to take regarding categorisation of clients into customers and eligible counterparties will depend on whether the firm is carrying on designated investment business or other activities, as described in PRIN 1.2.3G. … 1 Annex 1R Non-designated investment business - clients that a firm may treat as an eligible counterparty for the purposes of PRIN
1.1 A firm may categorise the following types of client as an eligible
counterparty for the purposes of PRIN:
…
(4) a State investment body, or a body charged with, or intervening in, the management of the public debt at national level; … …

FCA 2017/xx
2 The Principles
2.1 The Principles
2.1.1 R The Principles
…
11 Relations with regulators
A firm must deal with its regulators in an open and cooperative way, and must disclose to the appropriate regulator FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice. … 3 Rules about application
3.1 Who?
…
3.1.2 G COBS 1 Annex 1 and the territorial guidance in PERG 13.6 all contain
contains guidance that is relevant to the reservation of responsibility to a Home State regulator referred to in PRIN 3.1.1R(1). …
3.2 What?
…
3.2.3 R Principles 3, 4 and (in so far as it relates to disclosing to the appropriate
regulator FCA) 11 (and this chapter) also:
(1) apply with respect to the carrying on of unregulated activities (for Principle 3 this is only in a prudential context); and (2) take into account any activity of other members of a group of which the firm is a member.
3.3 Where?
3.3.1 R Territorial application of the Principles
Principle Territorial application

FCA 2017/xx
Principles
1, 2 and 3 in a prudential context, apply with respect to activities wherever they are carried on; otherwise, apply with respect to activities carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom unless another applicable rule or EU regulation which is relevant to the activity has a wider territorial scope, in which case the Principle applies with that wider scope in relation to the activity described in that rule or EU regulation. … Principles 6, 7, 8, 9 and 10 Principle 8, in a prudential context, applies with respect to activities wherever they are carried on; otherwise apply with respect to activities carried on from an establishment maintained by the firm (or its appointed representative) in the United Kingdom unless another applicable rule or EU regulation which is relevant to the activity has a wider territorial scope, in which case the Principle applies with that wider scope in relation to the activity described in that rule or EU regulation. …
3.4 General
Clients and the Principles
3.4.1 R Although Principle 7 refers to clients, For business other than MiFID or
equivalent third country business, the only requirement of Principle 7 relating to eligible counterparties is that a firm must communicate information to eligible counterparties in a way that is not misleading. 3.4.1A G Principle 7 applies in full to MiFID or equivalent third country business. … Reference to “regulators” in Principle 11
3.4.5 R Where Principle 11 refers to regulators, this means, in addition to the
appropriate regulator FCA, other regulators with recognised jurisdiction in relation to regulated activities, whether in the United Kingdom or abroad.
4.1 Principles: MiFID business
4.1.1 G PRIN 3.1.6R ensures that the Principles do not impose obligations upon firms
which are inconsistent with an EU instrument. If a Principles Principle does purport to impose such an obligation PRIN 3.1.6R disapplies that Principle

FCA 2017/xx but only to the extent necessary to ensure compliance with European law. This disapplication has practical effect only for certain matters covered by MiFID, which are explained in this section. Where?
4.1.2 G Under PRIN 3.3.1R, the territorial application of a number of Principles to a
UK MiFID investment firm is extended to the extent that another applicable rule or EU regulation which is relevant to an activity has a wider territorial scope. … … What? …
4.1.5 G Although Principle 8 does not apply to eligible counterparty business, a firm
will owe obligations in respect of conflicts of interest set out in SYSC 10 which are wider than those contained in Principle 8 in that they apply to eligible counterparty business. [deleted]

FCA 2017/xx
Annex C
Amendments to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) In this Annex, underlining indicates new text and striking through indicates deleted text, unless indicated otherwise. 1 Application and purpose 1.1A Application … 1.1A.1A G The application of this sourcebook to firms that are not PRA-authorised persons is summarised at a high level in the following table. The detailed application is cut back in SYSC 1 Annex 1 and in the text of each chapter. Type of firm Applicable chapters Full-scope UK AIFM Chapters 4 to 10, 12, 18, 19B, 21, 22 … … … 1 Annex 1 Detailed application of SYSC …
Part 2 Application of the common platform requirements (SYSC 4 to
10)
…
2.6C R The common platform requirements apply to an AIFM investment firm which is a full-scope UK AIFM in respect of its MiFID business in line with Column A in Table A of Part 3. 2.6D R The common platform requirements apply to a full-scope UK AIFM of an authorised AIF in line with column Column A++ in
Table A of Part 3.
2.6E G The common platform requirements apply to a small authorised UK AIFM in line with Column B in Table A of Part 3 (unless such a firm is also a common platform firm, in which case they must comply with Column A). …

FCA 2017/xx
2.7A G EEA UCITS management companies are also reminded that they must comply with:
(1) the common platform requirements indicated in Column A+ (Application to a management company) in Table A in Part 3 of this Annex; … What?
2.8 R …
2.8A R (1) Subject to (2) and (3), in SYSC 1 Annex 1 2.8R, articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation (including any relevant definitions in MiFID, MiFIR and the MiFID Org Regulation) apply to a firm’s business other than MiFID business or structured deposits regulated activities as if they were rules or guidance in accordance with Part 3 (Tables summarising the application of the common platform requirements to different types of firm). (2) References in Column (1) to a word or phrase used in the MiFID Org Regulation for the purpose of (1) have the meaning indicated in Column (2) of the table below:
(1) (2)
“ancillary services” ancillary services or ancillary activities associated with the firm’s regulated activities “client” and “potential client” client “competent authority” FCA “investment firm” and “firm” firm “investment service” and “investment services and activities” designated investment business “portfolio management” and “portfolio management service” managing investments

FCA 2017/xx
“Directive 2014/65/EU”;
“Regulation (EU) No
600/2014”; “Directive
2014/57/EU” and
“Regulation (EU) No
596/2014” and their implementing measures regulatory system, except where the reference is to a specific provision of a Directive or Regulation in Column (1) in which case the reference must be read as referring to such specific provision “shall” must (3) Any references within the MiFID Org Regulation for the purpose of (1) to other provisions of EU law must be interpreted in light of this rule. (4) This rule does not apply to a collective portfolio management investment firm in relation to the firm’s business other than its MiFID business. [Note: The MiFID Org Regulation can be found at: [to follow].] 2.8B G The purpose of SYSC 1 Annex 1 2.8R and SYSC 1 Annex 1 2.8AR is that the common platform organisational requirements also apply when carrying on any of the activities listed in SYSC 1
Annex 1 2.8R even where they do not involve investment services
and/or activities and, where relevant, ancillary services (unless provided otherwise within a specific rule). 2.8C G SYSC 1 Annex 1 2.8AR(3) has the effect that, where the requirement in the MiFID Org Regulation that is a common platform organisational requirement includes a reference or cross reference to another part of the MiFID Org Regulation, that reference or cross reference is given the same meaning as for the purposes of SYSC 1 Annex 1 2.8AR. 2.8D G For the purpose of SYSC 1 Annex 1 2.8AR, a firm should apply any guidance published by the FCA that assists with interpreting the definitions in MiFID, MiFIR and the MiFID Org Regulation.
2.9 G The application of the provisions on the conflicts of interest in
SYSC 10 is set out in SYSC 10.1.1R 10.1.-2G to SYSC 10.1.1AR and SYSC 10.2.1R.
2.10 R The provisions on record-keeping in SYSC 9 and articles 21 and
72 of the MiFID Org Regulation apply as set out in SYSC 1 Annex 1.2.8R and SYSC 1 Annex 1.2.8AR, except that they only apply to the carrying on of ancillary activities that are performed in relation to:
…

FCA 2017/xx
…
2.14 G …
2.14A G The systems and control requirements in article 17 of MiFID for the following are in chapter 7A of the Market Conduct sourcebook (MAR):
(1) algorithmic trading;
(2) direct electronic access to a trading venue; and (3) acting as a general clearing member of a trading venue. 2.14B G Firms should refer to articles 38 to 42 of the MiFID Org Regulation for additional organisational requirements for underwriting and placing. Where? … 2.16A R (1) The common platform requirements referred to in Column A+ in Table A of Part 3 (below) apply to a UK UCITS management company in relation to passported activities carried on by it from a branch in another EEA State. … …
2.17 R The common platform record-keeping requirements apply to
activities carried on by a firm from an establishment maintained in the United Kingdom, unless another applicable rule which is relevant to the activity has a wider territorial scope, in which case the common platform record-keeping requirements apply with that wider scope in relation to the activity described in that rule. [Note: article 13(9) 16(11) first paragraph of MiFID] … 2.18A G SYSC 6.1.1R on systems and controls for countering the risk that a firm might be used to further financial crime is:
(1) a common platform organisational requirement, not a common platform requirement on financial crime; and (2) subject to the application, amongst other provisions, of SYSC 1 Annex 1 2.13R, SYSC 1 Annex 1 2.16R and SYSC 1 Annex 1 2.18R.

FCA 2017/xx
…
Part 3 Tables summarising the application of the common platform
requirements to different types of firm
3.1 G The common platform requirements apply in the following four
ways as described in the following table (subject to the provisions in Part 2 of this Annex (Application of the common platform requirements)). Type of firm Common platform requirements Common platform firm SYSC 1 Annex 1 3.2G, SYSC 1
Annex 1 3.2-AR and SYSC 1
Annex 1 3.2-BR
Management company SYSC 1 Annex 1 3.2AG
Full-scope UK AIFM of an authorised AIF
SYSC 1 Annex 1 3.2BR
MiFID optional exemption firm SYSC 1 Annex 1 3.2CR Third country firm SYSC 1 Annex 1 3.2CR All other firms (apart from insurers, managing agents, the Society, full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms) SYSC 1 Annex 1.3.3R Common platform firm
3.2 G For a common platform firm , (other than a dormant account fund
operator not subject to MiFID):
(1) SYSC 4 to SYSC 10 they apply in accordance with Column A in the table Table A below ; and (2) articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation are directly applicable to the firm. 3.2-A R For a common platform firm (other than a dormant account fund operator not subject to MiFID), articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation apply to the firm’s business other than MiFID business or structured deposits regulated activities as if the MiFID Org Regulation applied to the firm as rules in accordance with SYSC 1 Annex 1 2.8R and SYSC 1 Annex

FCA 2017/xx
1 2.8AR.
3.2-B R For a common platform firm that is a dormant account fund operator and is not subject to MiFID:
(1) SYSC 4 to SYSC 10 apply in accordance with Column A in
Table A below; and
(2) articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation apply as if the MiFID Org Regulation applied to the firm as rules in accordance with SYSC 1 Annex 1 2.8R and SYSC 1 Annex 1 2.8AR. Management company 3.2A G For a management company, they the common platform requirements in SYSC 4 to SYSC 10 apply in accordance with Column A+ in the table Table A below. Full-scope UK AIFM of an authorised AIF 3.2B R For a full-scope UK AIFM of an authorised AIF, they the common platform requirements in SYSC 4 to SYSC 10 apply in line accordance with Column A++ in the table Table A below. MiFID optional exemption firm and a third country firm 3.2C R For a MiFID optional exemption firm and a third country firm:
(1) SYSC 4 to SYSC 10 apply as rules or as guidance in accordance with Table B below in the following way:
(a) where a rule is shown modified as 'Guidance', it should be read as guidance (as if "should" appeared in that rule instead of "must"); and (b) the provision should be applied in a proportionate manner, taking into account the nature, scale and complexity of the firm’s business; and (2) articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation apply as if the MiFID Org Regulation applied to the firm as rules (in accordance with SYSC 1 Annex 1 2.8R and SYSC 1 Annex 1 2.8AR) or as guidance in accordance with Part 1 of Table C below. Part 2 of Table C sets out those articles of the MiFID Org Regulation. 3.2D R (1) Subject to (2), SYSC 4.3A.6R, SYSC 4.3A.8R and SYSC 7.1.18R apply to a MiFID optional exemption firm that is ‘significant’ as a rule or as guidance in accordance with SYSC 1 Annex 1 3.2CR.

FCA 2017/xx
(2) In (1), ‘significant’ means a MiFID optional exemption firm that meets one of more of the conditions in paragraphs (1) to (5) of IFPRU 1.2.3R and related rules and guidance. Other firms 3.3E R SYSC 1 Annex 1 3.3R does not apply to the following:
(1) insurers;
(2) managing agents;
(3) the Society;
(4) full-scope UK AIFMs of unauthorised AIFs; (5) MiFID optional exemption firms; and (6) third country firms.
3.3 G
R
For all other firms apart from insurers, managing agents, the Society and full-scope UK AIFMs of unauthorised AIFs, they :
(1) SYSC 4 to SYSC 10 apply as rules or as guidance in accordance with Column B in the table Table A below in the following way:
(a) For these firms, where a rule is shown modified in Column B as 'Guidance', it should be read as guidance (as if "should" appeared in that rule rule instead of "must") ; and (b) the provision should be applied in a proportionate manner, taking into account the nature, scale and complexity of the firm's firm’s business; and (2) articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation do not apply. 3.3A R SYSC 1 Annex 1 3.3R(1)(b) does not apply to a firm in relation to the requirements in SYSC 4.5 (Management responsibilities maps for UK relevant authorised persons), SYSC 4.6 (Management responsibilities maps for non-UK relevant authorised persons), SYSC 4.7 (Senior management responsibilities for UK relevant authorised persons: allocation of responsibilities), SYSC 4.8 (Senior management responsibilities for third country relevant authorised persons: allocation of responsibilities), SYSC 4.9 (Handover procedures and material) and SYSC 5.2 (Certification regime).

FCA 2017/xx
[Editor’s note: The rows in Table A below relating to SYSC 10.1.4R, SYSC 10.1.6R, SYSC 10.1.10R and SYSC 10.1.11R are provisional, as they depend on possible changes to COBS 12 consulted on in CP16/29. The final content of these rows will be confirmed at the time of making the final rules.]
Table A: Application of the common platform requirements in SYSC 4 to SYSC
10
Provision
SYSC 4
COLUMN A
Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a fullscope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, managing agents the Society, and full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms SYSC 4.1.- 2G Guidance Not applicable save in relation to a UCITS investment firm and its MiFID business Not applicable Not applicable SYSC 4.1.- 1G Not applicable Not applicable Not applicable Not applicable … SYSC 4.1.1CR Rule for a BIPRU firm Rule for a BIPRU firm that is a UCITS investment firm Not applicable Third country BIPRU firms:
Rule
Other firms:
Not applicable
…
SYSC
4.1.4R
Rule Not applicable
Rule Not applicable
(1) and (3) :
Guidance ; (2)
: Rule

FCA 2017/xx
…
SYSC
4.1.5R
Rule applies only to a
MiFID investment firm
Not applicable
Rule Not applicable
Not applicable
…
SYSC
4.1.7R
Rule for a CRR firm only
Rule Not applicable
Guidance
…
SYSC
4.1.9R
Rule Not applicable
Rule Not applicable
Not applicable
SYSC
4.1.10R
Rule Not applicable
Rule Not applicable
Guidance - except reference to
SYSC 4.1.9R which does not apply to these firms … SYSC 4.2.1R Rule - UK branch of non-EEA bank

rule applies.
Other firmsGuidance
…
SYSC
4.2.2R
Rule - UK branch of a non-EEA bank - Rule applies
Other firms -
this provision does not apply
Not applicable
SYSC
4.2.3G -
4.2.5G
Guidance - UK branch of a non-EEA bank -

FCA 2017/xx
Guidance

Other firms -
these provisions do not apply
Not applicable
SYSC
4.2.6R
Rule Rule for a
UCITS investment firm; otherwise not applicable Not applicable
UK branch of
a non-EEA bank - Rule applies
Other firms -
this provision does not apply
Not applicable
…
SYSC
4.3.1R
Rule Not applicable
Rule Not applicable
Rule (but not applicable to incoming EEA firms, incoming Treaty firms or UCITS qualifiers) SYSC 4.3.2R Rule Not applicable Rule Not applicable Guidance (but not applicable to incoming EEA firms, incoming Treaty firms or UCITS qualifiers) … SYSC 4.3A.-1R Rule applicable to CRR firms Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.1R Rule applicable to CRR firms Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC Rule Rule for a CRR Not Not applicable

FCA 2017/xx
4.3A.1AR firm that is a
UCITS investment firm applicable
SYSC
4.3A.2R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.2AG
Guidance Guidance for a
CRR firm that is a UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.3R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.4R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.5R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.6R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.7R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.8R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.9R
Rule applicable to CRR firms
Rule for a CRR firm that is a
UCITS investment firm
Not applicable
Not applicable
SYSC
4.3A.10R
Rule applicable to CRR firms
Rule for a CRR firm that is a
Not applicable
Not applicable

FCA 2017/xx
UCITS investment firm
…
SYSC 4.5 Whole section applies to UK relevant authorised persons only Not applicable Not applicable Not applicable Whole section applies to relevant authorised persons only. All rules apply as rules and not as guidance. SYSC 4.6 Applies to EEA relevant authorised persons and third country relevant authorised persons in accordance with the rules in SYSC 4.6 Not applicable Not applicable Not applicable Whole section applies to relevant authorised persons only. All rules apply as rules and not as guidance. SYSC 4.7 Whole section applies to UK relevant authorised persons only Not applicable Not applicable Not applicable Whole section applies to relevant authorised persons only. All rules apply as rules and not as guidance. SYSC 4.8 Applies to third country relevant authorised persons only Not applicable Not applicable Not applicable Whole section applies to relevant authorised persons only. All rules apply as rules and not as guidance.

FCA 2017/xx
SYSC 4.9 Whole section applies to third country relevant authorised persons and UK relevant authorised persons only Not applicable Not applicable Not applicable Whole section applies to relevant authorised persons only. All rules apply as rules and not as guidance. Provision SYSC 5 COLUMN A Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a fullscope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, managing agents, the Society, and full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms SYSC 5.1.- 2G Guidance Not applicable save in relation to a UCITS investment firm and its MiFID business Not applicable Not applicable SYSC 5.1.- 1G Not applicable Not applicable Not applicable Not applicable SYSC 5.1.1R Rule Not applicable Rule Not applicable Rule … SYSC 5.1.6R Rule Not applicable Rule Guidance Guidance

FCA 2017/xx
…
SYSC
5.1.12R
Rule Not applicable
Rule Not applicable
Guidance
…
SYSC
5.1.13R
Rule Not applicable
Rule Not applicable
Rule
SYSC
5.1.14R
Rule Not applicable
Rule Not applicable
Guidance
…
Provision
SYSC 6
COLUMN A
Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a fullscope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, managing agents, the Society and , full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms SYSC 6.1.-2G Guidance Not applicable save in relation to a UCITS investment firm and its MiFID business Not applicable Not applicable SYSC 6.1.-1G Not applicable Not applicable Not applicable Not applicable …

FCA 2017/xx
SYSC
6.1.2R
Rule Not applicable
Rule Not applicable
Guidance
…
SYSC
6.1.3R
Rule Not applicable
Rule Not applicable

Guidance
This provision shall be read with the following additional sentence at the start. "Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate compliance function. Where a firm has a separate compliance function, the firm should also take into account SYSC 6.1.3R and SYSC 6.1.4R as guidance." … SYSC 6.1.4R Rule Not applicable Rule Not applicable (1) , (3) and (4) : Guidance ; (2) :
Rule for firms
which carry on designated investment business with or for retail clients or professional clients.

FCA 2017/xx

Guidance for
all other firms.
SYSC
6.1.4-AG
Not applicable
Guidance
Not applicable Rule Guidance
…
SYSC
6.1.4-CG
Guidance applies to relevant authorised persons only Not applicable Not applicable Not applicable … SYSC 6.1.5R Not applicable Rule Not applicable
Guidance
"investment
services and/or activities" shall be read as "financial services and activities" … SYSC 6.2.1R Rule Not applicable Rule Not applicable Guidance … SYSC 6.2.1BG Guidance applies to relevant authorised persons only Not applicable Not applicable Not applicable … Provision SYSC 7 COLUMN A Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a fullscope UK AIFM of an authorised COLUMN B Application to all other firms apart from insurers, managing agents, the

FCA 2017/xx
AIF Society, and full-scope UK
AIFMs of unauthorised
AIFs, MiFID optional exemption firms and third country firms SYSC 7.1.-2G Guidance Not applicable save in relation to a UCITS investment firm and its MiFID business Not applicable Not applicable SYSC 7.1.-1G Not applicable Not applicable Not applicable Not applicable … SYSC 7.1.2R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance … SYSC 7.1.3R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance … SYSC 7.1.4AG Not applicable Guidance Rule for a UCITS investment firm; otherwise guidance Not applicable Guidance

FCA 2017/xx
…
SYSC
7.1.5R
Rule Not applicable
Rule for a
UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance SYSC 7.1.6R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance SYSC 7.1.7R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance … SYSC 7.1.8G [deleted] Guidance [deleted] Guidance [deleted] Guidance [deleted] Guidance … SYSC 7.1.16AG Guidance applies to a BIPRU firm [deleted] Guidance for a UCITS investment firm otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted] SYSC 7.1.16BG Guidance applies to a BIPRU firm [deleted] Guidance for a UCITS investment firm otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted]

FCA 2017/xx
…
SYSC
7.1.18AG
7.1.18AA
G
Guide Guidance applies to a CRR firm
Guidance for a
UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable … SYSC 7.1.23G Guidance applies to UK relevant authorised persons and third country relevant authorised persons only Not applicable Not applicable Not applicable Provision SYSC 8 COLUMN A Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a full-scope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, managing agents, the Society, and full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms SYSC 8.1.-2G Guidance Not applicable save in relation to a UCITS investment firm and its MiFID business Not applicable Not applicable

FCA 2017/xx
SYSC
8.1.-1G
Not applicable Not applicable
Not applicable Not applicable
…
SYSC
8.1.4R
Rule Not applicable
Rule for a
UCITS investment firm; otherwise guidance Not applicable Guidance SYSC 8.1.5R Rule Not applicable Rule for a UCITS investment firm; otherwise guidance Not applicable Guidance … SYSC 8.1.6R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Rule SYSC 8.1.6AG Guidance for a UCITS investment firm in relation to its MiFID business Not applicable Not applicable Not applicable SYSC 8.1.7R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance SYSC 8.1.8R Rule Not applicable Rule for a UCITS investment Not applicable Guidance

FCA 2017/xx firm in relation to its non-MiFID business; otherwise guidance SYSC 8.1.9R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance SYSC 8.1.10R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance SYSC 8.1.11R Rule Not applicable Rule for a UCITS investment firm in relation to its non-MiFID business; otherwise guidance Not applicable Guidance … SYSC 8.2 MiFID investment firms only [deleted] UCITS investment firms only [deleted] Not applicable [deleted] Not applicable [deleted] SYSC 8.3 MiFID investment firms only [deleted] UCITS investment firms only [deleted] Not applicable [deleted] Not applicable [deleted]

FCA 2017/xx
Provision
SYSC 9
COLUMN A
Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a fullscope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, managing agents, the Society, and full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms SYSC 9.1.-2G Guidance Not applicable save in relation to a UCITS investment firm and its MiFID business Not applicable Not applicable SYSC 9.1.-1G Not applicable Not applicable Not applicable Not applicable SYSC 9.1.1R Rule Not applicable Rule Rule but only for the requirement to arrange for orderly records to be kept of its business and internal organisation which do not relate to portfolio transactions and subscription and redemptions orders Rule SYSC 9.1.1AR Rule Not applicable Not applicable Not applicable

FCA 2017/xx
SYSC
9.1.2R
Rule applies only in relation to MiFID business Rule applies only in relation to MiFID business of a UCITS investment firm Rule but only for records specified by the modified application of SYSC 9.1.1R Not applicable SYSC 9.1.3R Rule applies only in relation to MiFID business [deleted] Rule applies only in relation to MiFID business of a UCITS investment firm [deleted] Not applicable [deleted] Not applicable [deleted] … SYSC 9.1.7G Guidance applies only in relation to MiFID business [deleted] Guidance applies only in relation to MiFID business of a UCITS investment firm [deleted] Not applicable [deleted] Not applicable [deleted] Provision SYSC 10 Column A Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a fullscope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, managing agents, the Society, and full-scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms SYSC 10.1.-2G Guidance Guidance in relation to relation to a Not applicable Not applicable

FCA 2017/xx
UCITS investment firm in relation to its MiFID business; otherwise not applicable SYSC 10.1.-1G Not applicable Not applicable Not applicable Not applicable … SYSC 10.1.4R Rule Not applicable Rule Not applicable Guidance – but applies as a rule in relation to the production or arrangement of investment research in accordance with COBS 12.2, or the production or dissemination of nonindependent research in accordance with COBS 12.3 … SYSC 10.1.6R Rule Not applicable Rule Not applicable Guidance – but applies as a rule in relation to the production or arrangement of investment research in accordance with COBS 12.2, or the production or dissemination of nonindependent research in accordance with COBS 12.3

FCA 2017/xx
SYSC
10.1.6AG
Not applicable Not applicable Not applicable Guidance Guidance SYSC 10.1.6BG Not applicable Guidance … SYSC 10.1.8R Rule Not applicable Rule Not applicable Rule SYSC 10.1.8AR Rule Not applicable Rule Not applicable Rule SYSC 10.1.9G Guidance Not applicable Guidance Not applicable Guidance SYSC 10.1.9AR Not applicable Not applicable Not applicable Rule SYSC 10.1.10R Rule Not applicable Rule Not applicable [Guidance – but applies as a rule in relation to the production or arrangement of investment research in accordance with COBS 12.2, or the production or dissemination of nonindependent research in accordance with COBS 12.3] SYSC 10.1.11R Rule Not applicable Rule Not applicable [Guidance – but applies as a rule in relation to the production or arrangement of investment research in accordance with COBS 12.2, or the production or

FCA 2017/xx dissemination of nonindependent research in accordance with COBS 12.3] SYSC 10.1.11A G Not applicable Not applicable Not applicable Guidance Guidance SYSC 10.1.11B G Not applicable Guidance … SYSC 10.1.12G - 10.1.15G Guidance Not applicable Guidance for SYSC 10.1.12G; not applicable for SYSC 10.1.13G – SYSC 10.1.15G Guidance for SYSC 10.1.12G; not applicable for SYSC 10.1.13G to SYSC 10.1.15G Guidance SYSC 10.1.13- 10.1.15G [deleted] [deleted] [deleted] [deleted] … Insert the following new Tables B and C after Table A. All the text is new and is not underlined.
Table B: Application of the common platform requirements in SYSC 4 to 10 to MiFID
optional exemption firms and third country firms Provision COLUMN A MiFID optional exemption firms COLUMN B Third country firms SYSC 4 SYSC 4.1.-2G Not applicable Not applicable

FCA 2017/xx
SYSC 4.1.-1G Guidance Guidance
SYSC 4.1.1R Rule Rule
SYSC 4.1.1AR Not applicable Not applicable SYSC 4.1.1BR Not applicable Not applicable SYSC 4.1.1CR Not applicable Rule SYSC 4.1.1DR Not applicable Not applicable SYSC 4.1.1ER Not applicable Not applicable SYSC 4.1.1FG Not applicable Not applicable SYSC 4.1.2R Rule Guidance SYSC 4.1.2AG Not applicable Not applicable SYSC 4.1.2AAR Not applicable Not applicable SYSC 4.1.2BR Not applicable Not applicable SYSC 4.1.2CR Not applicable Not applicable SYSC 4.1.2DR Not applicable Not applicable SYSC 4.1.4R Not applicable Not applicable SYSC 4.1.4AG Not applicable Not applicable SYSC 4.1.5R Not applicable Not applicable SYSC 4.1.6R Rule Guidance SYSC 4.1.7R Rule Guidance SYSC 4.1.7AG Not applicable Not applicable SYSC 4.1.8G Guidance Guidance SYSC 4.1.9R Not applicable Not applicable SYSC 4.1.10R Not applicable Not applicable SYSC 4.1.10AG Not applicable Not applicable SYSC 4.1.11G Guidance Guidance SYSC 4.1.13G Guidance Guidance

FCA 2017/xx
SYSC 4.1.14G Guidance Guidance
SYSC 4.2.1R Rule Rule
SYSC 4.2.1AG Not applicable Not applicable SYSC 4.2.2R Rule Rule SYSC 4.2.3G - 4.2.5G Guidance Guidance SYSC 4.2.6R Rule Rule SYSC 4.2.7R Not applicable Not applicable SYSC 4.2.8G Not applicable Not applicable SYSC 4.3.1R Not applicable Not applicable SYSC 4.3.2R Not applicable Not applicable SYSC 4.3.2AG Not applicable Not applicable SYSC 4.3.3G Guidance Guidance SYSC 4.3A.-1R Rule Not applicable SYSC 4.3A.1R Rule Not applicable SYSC 4.3A.1AR Rule Not applicable SYSC 4.3A.2R Rule Not applicable SYSC 4.3A.2AG Guidance Not applicable SYSC 4.3A.3R Rule Not applicable SYSC 4.3A.4R Rule Not applicable SYSC 4.3A.5R Rule Not applicable SYSC 4.3A.6R Rule Not applicable SYSC 4.3A.7R Rule Not applicable SYSC 4.3A.8R Rule Not applicable SYSC 4.3A.9R Rule Not applicable SYSC 4.3A.10R Rule Not applicable SYSC 4.3A.11R Not applicable Not applicable

FCA 2017/xx
SYSC 4.4.1AR Not applicable Not applicable SYSC 4.4.2G Not applicable Not applicable SYSC 4.4.3R Not applicable Not applicable SYSC 4.4.5R Not applicable Not applicable SYSC 4.4.6G Not applicable Not applicable SYSC 4.5 Not applicable Not applicable SYSC 4.6 Not applicable Third country relevant authorised person: each provision applies as rule or guidance as shown in SYSC 4.6 SYSC 4.7 Not applicable Not applicable SYSC 4.8 Not applicable Third country relevant authorised person: each provision applies as rule or guidance as shown in SYSC 4.8 SYSC 4.9 Not applicable Third country relevant authorised person: each provision applies as rule or guidance as shown in SYSC 4.9 SYSC 5 SYSC 5.1.-2G Not applicable Not applicable SYSC 5.1.-1G Guidance Guidance SYSC 5.1.1R Not applicable Not applicable SYSC 5.1.2G Guidance Guidance SYSC 5.1.3G Guidance Guidance SYSC 5.1.4G Guidance Guidance SYSC 5.1.4AG Guidance Guidance SYSC 5.1.5G Guidance Guidance SYSC 5.1.5AG Guidance Guidance SYSC 5.1.6R Not applicable Not applicable

FCA 2017/xx
SYSC 5.1.7R Rule Rule
SYSC 5.1.7AG Not applicable Not applicable SYSC 5.1.8G Guidance Guidance SYSC 5.1.9G Guidance Guidance SYSC 5.1.10G Guidance Guidance SYSC 5.1.11G Guidance Guidance SYSC 5.1.12R Not applicable Not applicable SYSC 5.1.12AG Not applicable Not applicable SYSC 5.1.13R Not applicable Not applicable SYSC 5.1.14R Not applicable Not applicable SYSC 5.1.15G Not applicable Not applicable SYSC 5.2 Not applicable Third country relevant authorised person: each provision applies as rule or guidance as shown in SYSC 5.2 SYSC 6 SYSC 6.1.-2G Not applicable Not applicable SYSC 6.1.-1G Guidance Guidance SYSC 6.1.1R Rule Rule SYSC 6.1.1AG Guidance Guidance SYSC 6.1.2R Not applicable Not applicable SYSC 6.1.2AG Not applicable Not applicable SYSC 6.1.3R Not applicable Not applicable SYSC 6.1.3AG Not applicable Not applicable SYSC 6.1.4R Not applicable Not applicable SYSC 6.1.4-AG Guidance Guidance SYSC 6.1.4AR Not applicable Not applicable

FCA 2017/xx
SYSC 6.1.4-BG Not applicable Not applicable SYSC 6.1.4CR Not applicable Not applicable SYSC 6.1.4-CG Not applicable Guidance for a third country relevant authorised person SYSC 6.1.5R Not applicable Not applicable SYSC 6.1.6G Not applicable Not applicable SYSC 6.1.7R Not applicable Not applicable SYSC 6.2.1R Not applicable Not applicable SYSC 6.2.1AG Not applicable Not applicable SYSC 6.2.1BG Not applicable Guidance for a third country relevant authorised person SYSC 6.2.2G Guidance Guidance SYSC 6.3.1R Rule Rule SYSC 6.3.2G Guidance Guidance SYSC 6.3.3R Rule Rule SYSC 6.3.4G Guidance Guidance SYSC 6.3.5G Guidance Guidance SYSC 6.3.6G Guidance Guidance SYSC 6.3.7G Guidance Guidance SYSC 6.3.8R Rule Rule SYSC 6.3.9R Rule Rule SYSC 6.3.10G Guidance Guidance SYSC 6.3.11G Guidance Guidance SYSC 7 SYSC 7.1.-2G Not applicable Not applicable SYSC 7.1.-1G Guidance Guidance SYSC 7.1.1G Guidance Guidance

FCA 2017/xx
SYSC 7.1.2R Not applicable Not applicable SYSC 7.1.2AG Not applicable Not applicable SYSC 7.1.2BG Not applicable Not applicable SYSC 7.1.3R Not applicable Not applicable SYSC 7.1.4R Rule Guidance SYSC 7.1.4AG Guidance Guidance SYSC 7.1.4BG Not applicable Not applicable SYSC 7.1.5R Not applicable Not applicable SYSC 7.1.6R Not applicable Not applicable SYSC 7.1.7R Not applicable Not applicable SYSC 7.1.7AG Not applicable Not applicable SYSC 7.1.7BG Not applicable Not applicable SYSC 7.1.7BAG Not applicable Not applicable SYSC 7.1.7BBG Not applicable Not applicable SYSC 7.1.7CG Guidance Guidance SYSC 7.1.8G Guidance Guidance SYSC 7.1.9R Not applicable Not applicable SYSC 7.1.10R Not applicable Not applicable SYSC 7.1.11R Not applicable Not applicable SYSC 7.1.12G Not applicable Not applicable SYSC 7.1.13R - 7.1.16R Not applicable Not applicable SYSC 7.1.16AG Not applicable Not applicable SYSC 7.1.16BG Not applicable Not applicable SYSC 7.1.16CR Not applicable Not applicable SYSC 7.1.17R Guidance Not applicable

FCA 2017/xx
SYSC 7.1.18R Guidance Not applicable
SYSC 7.1.18AAG Guidance Not applicable
SYSC 7.1.18BR Guidance Not applicable
SYSC 7.1.19R Guidance Not applicable
SYSC 7.1.20R Guidance Not applicable
SYSC 7.1.21R Guidance Not applicable
SYSC 7.1.22R Guidance Not applicable
SYSC 7.1.23G Not applicable Guidance for a third country relevant authorised person SYSC 8 SYSC 8.1.-2G Not applicable Not applicable SYSC 8.1.-1G Guidance Guidance SYSC 8.1.1R Rule Guidance SYSC 8.1.1AG Not applicable Not applicable SYSC 8.1.2G Guidance Guidance SYSC 8.1.3G Guidance Guidance SYSC 8.1.4R Not applicable Not applicable SYSC 8.1.5R Not applicable Not applicable SYSC 8.1.5AG Not applicable Not applicable SYSC 8.1.6R Not applicable Not applicable SYSC 8.1.6AG Not applicable Not applicable SYSC 8.1.7R Not applicable Not applicable SYSC 8.1.8R Not applicable Not applicable SYSC 8.1.9R Not applicable Not applicable SYSC 8.1.10R Not applicable Not applicable SYSC 8.1.11R Not applicable Not applicable

FCA 2017/xx
SYSC 8.1.11AG Not applicable Not applicable SYSC 8.1.12G Not applicable Not applicable SYSC 8.1.13R Not applicable Not applicable SYSC 8.1.14G Not applicable Not applicable SYSC 9 SYSC 9.1.-2G Not applicable Not applicable SYSC 9.1.-1G Guidance Guidance SYSC 9.1.1R Not applicable Not applicable SYSC 9.1.1AR Rule Rule SYSC 9.1.2R Rule Not applicable SYSC 9.1.4G Guidance Guidance SYSC 9.1.5G Guidance Guidance SYSC 9.1.6G Guidance Guidance SYSC 10 SYSC 10.1.-2G Not applicable Not applicable SYSC 10.1.-1G Guidance Guidance SYSC 10.1.1R Rule Rule SYSC 10.1.1AR Not applicable Not applicable SYSC 10.1.2G Guidance Guidance SYSC 10.1.3R Rule Rule SYSC 10.1.4R Rule Guidance SYSC 10.1.4AG Not applicable Guidance SYSC 10.1.5G Guidance Guidance SYSC 10.1.6R Rule Guidance SYSC 10.1.6AG Not applicable Guidance SYSC 10.1.6BG Not applicable Guidance

FCA 2017/xx
SYSC 10.1.7R Rule Rule
SYSC 10.1.8R Rule Rule
SYSC 10.1.8AR Rule Rule
SYSC 10.1.9G Guidance Guidance
SYSC 10.1.9AR Not applicable Not applicable SYSC 10.1.10R Rule Guidance SYSC 10.1.11R Rule Guidance SYSC 10.1.11AG Not applicable Guidance SYSC 10.1.11BG Not applicable Guidance SYSC 10.1.12G Guidance Guidance SYSC 10.1.16R Not applicable Not applicable SYSC 10.1.17R Not applicable Not applicable SYSC 10.1.18G Not applicable Not applicable SYSC 10.1.19R Not applicable Not applicable SYSC 10.1.20R Not applicable Not applicable SYSC 10.1.21R Not applicable Not applicable SYSC 10.1.22R Not applicable Not applicable SYSC 10.1.23R Not applicable Not applicable SYSC 10.1.24R Not applicable Not applicable SYSC 10.1.25R Not applicable Not applicable SYSC 10.1.26R Not applicable Not applicable SYSC 10.1.27G Not applicable Not applicable SYSC 10.2.1R Rule Rule SYSC 10.2.2R Rule Rule SYSC 10.2.3G Guidance Guidance SYSC 10.2.4R Rule Rule

FCA 2017/xx
SYSC 10.2.5G Guidance Guidance
Table C:
Part 1: Application of the requirements in articles 1(2), 21 to 25, 30 to 32 and 72 of the
MiFID Org Regulation to MiFID optional exemption firms and third country firms Provision MiFID Org Regulation Text of the MiFID Org Regulation as of:
MiFID optional exemption firm
Third country firm
Article 1 – Subjectmatter and scope
(2) [xx/xx/2016] Not applicable Not applicable
Article 21 – General
organisational requirements
(1) Rule (a), (b) and (g):
Guidance;
(c), (d), (e), (f) and final paragraph: Rule (2) Rule Rule (3) Rule Guidance (4) Rule Guidance (5) Rule Guidance
Article 22 –
Compliance
(1) Guidance Guidance
(2) Guidance Guidance
(3) Guidance (a), (c), (d) and
(e): Guidance;
(b): Rule
(4) Guidance Guidance
Article 23 – Risk
management
Guidance Guidance
Article 24 – Internal audit Guidance Guidance
Article 25 – Responsibility of
senior management
Guidance (1): Rule;
(2), (3) and (4):
Guidance
Article 30 – Scope of critical Guidance Guidance

FCA 2017/xx and important operational functions
Article 31 – Outsourcing
critical or important operational functions (1): Rule; (2), (3), (4) and (5):
Guidance
(1): Rule;
(2), (3), (4) and
(5): Guidance
Article 32(1) and (2) –
Service providers located in third countries Rule Guidance
Article 72 – Retention of
records
Rule Guidance
Part 2: Articles 1(2), 21 to 25, 30 to 32 and 72 of the MiFID Org Regulation
EU Article 1 - Subject-matter and scope
2 References to investment firms shall encompass credit institutions and references to financial instruments shall encompass structured deposits in relation to all the requirements referred to in Article 1(3) and 1(4) of Directive 2014/65/EU and their implementing provisions as set out under this Regulation. EU Article 21 - General organisational requirements 1 Investment firms shall comply with the following organisational requirements:
(a) establish, implement and maintain decision-making procedures and an organisational structure which clearly and in documented manner specifies reporting lines and allocates functions and responsibilities; (b) ensure that their relevant persons are aware of the procedures which must be followed for the proper discharge of their responsibilities; (c) establish, implement and maintain adequate internal control mechanisms designed to secure compliance with decisions and procedures at all levels of the investment firm; (d) employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them; (e) establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the investment firm; (f) maintain adequate and orderly records of their business and internal organisation; (g) ensure that the performance of multiple functions by their relevant persons does not and is not likely to prevent those persons from

FCA 2017/xx discharging any particular function soundly, honestly, and professionally. When complying with the requirements set out in the this paragraph, investment firms shall take into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business. 2 Investment firms shall establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question. 3 Investment firms shall establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to their systems and procedures, the preservation of essential data and functions, and the maintenance of investment services and activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of their investment services and activities. 4 Investment firms shall establish, implement and maintain accounting policies and procedures that enable them, at the request of the competent authority, to deliver in a timely manner to the competent authority financial reports which reflect a true and fair view of their financial position and which comply with all applicable accounting standards and rules. 5 Investment firms shall monitor and, on a regular basis, evaluate the adequacy and effectiveness of their systems, internal control mechanisms and arrangements established in accordance with paragraphs 1 to 4, and take appropriate measures to address any deficiencies. EU Article 22 - Compliance 1 Investment firms shall establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under Directive 2014/65/EU, as well as the associated risks, and put in place adequate measures and procedures designed to minimise such risk and to enable the competent authorities to exercise their powers effectively under that Directive. Investment firms shall take into account the nature, scale and complexity of the business of the firm, and the nature and range of investment services and activities undertaken in the course of that business. 2 Investment firms shall establish and maintain a permanent and effective compliance function which operates independently and which has the following responsibilities:
(a) to monitor on a permanent basis and to assess, on a regular basis, the adequacy and effectiveness of the measures, policies and procedures put in place in accordance with the first subparagraph of paragraph 1,

FCA 2017/xx and the actions taken to address any deficiencies in the firm's compliance with its obligations; (b) to advise and assist the relevant persons responsible for carrying out investment services and activities to comply with the firm's obligations under Directive 2014/65/EU; (c) to report to the management body, on at least an annual basis, on the implementation and effectiveness of the overall control environment for investment services and activities, on the risks that have been identified and on the complaints-handling reporting as well as remedies undertaken or to be undertaken; (d) to monitor the operations of the complaints-handling process and consider complaints as a source of relevant information in the context of its general monitoring responsibilities. In order to comply with points (a) and (b) of this paragraph, the compliance function shall conduct an assessment on the basis of which it shall establish a risk-based monitoring programme that takes into consideration all areas of the investment firm’s investment services, activities and any relevant ancillary services, including relevant information gathered in relation to the monitoring of complaints handling. The monitoring programme shall establish priorities determined by the compliance risk assessment ensuring that compliance risk is comprehensively monitored. 3 In order to enable the compliance function referred to in paragraph 2 to discharge its responsibilities properly and independently, investment firms shall ensure that the following conditions are satisfied:
(a) the compliance function has the necessary authority, resources, expertise and access to all relevant information; (b) a compliance officer is appointed and replaced by the management body and is responsible for the compliance function and for any reporting as to compliance required by Directive 2014/65/EU and
Article 25(2) of this Regulation;
(c) the compliance function reports on an ad-hoc basis directly to the management body where it detects a significant risk of failure by the firm to comply with its obligations under Directive 2014/65/EU; (d) the relevant persons involved in the compliance function are not involved in the performance of services or activities they monitor; (e) the method of determining the remuneration of the relevant persons involved in the compliance function does not compromise their objectivity and is not likely to do so. 4 An investment firm shall not be required to comply with point (d) or point (e) of paragraph 3 where it is able to demonstrate that in view of the nature,

FCA 2017/xx scale and complexity of its business, and the nature and range of investment services and activities, the requirements under point (d) or (e) are not proportionate and that its compliance function continues to be effective. In that case, the investment firm shall assess whether the effectiveness of the compliance function is compromised. The assessment shall be reviewed on a regular basis. EU Article 23 - Risk management 1 Investment firms shall take the following actions relating to risk management:
(a) establish, implement and maintain adequate risk management policies and procedures which identify the risks relating to the firm's activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm; (b) adopt effective arrangements, processes and mechanisms to manage the risks relating to the firm's activities, processes and systems, in light of that level of risk tolerance; (c) monitor the following:
(i) the adequacy and effectiveness of the investment firm's risk management policies and procedures; (ii) the level of compliance by the investment firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with point (b); (iii) the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant persons to comply with such arrangements, processes and mechanisms or follow such policies and procedures. 2 Investment firms shall, where appropriate and proportionate in view of the nature, scale and complexity of their business and the nature and range of the investment services and activities undertaken in the course of that business, establish and maintain a risk management function that operates independently and carries out the following tasks:
(a) implementation of the policy and procedures referred to in paragraph 1; (b) provision of reports and advice to senior management in accordance with Article 25(2). Where an investment firm does not establish and maintain a risk management function under the first sub-paragraph, it shall be able to demonstrate upon request that the policies and procedures which it is has adopted in accordance with paragraph 1 satisfy the requirements therein.

FCA 2017/xx
EU Article 24 - Internal audit
Investment firms shall, where appropriate and proportionate in view of the nature, scale and complexity of their business and the nature and range of investment services and activities undertaken in the course of that business, establish and maintain an internal audit function which is separate and independent from the other functions and activities of the investment firm and which has the following responsibilities:
(a) establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the investment firm's systems, internal control mechanisms and arrangements; (b) issue recommendations based on the result of work carried out in accordance with point (a) and verify compliance with those recommendations; (c) report in relation to internal audit matters in accordance with Article 25(2). EU Article 25 - Responsibility of senior management 1 Investment firms shall, when allocating functions internally, ensure that senior management, and, where applicable, the supervisory function, are responsible for ensuring that the firm complies with its obligations under Directive 2014/65/EU. In particular, senior management and, where applicable, the supervisory function shall be required to assess and periodically review the effectiveness of the policies, arrangements and procedures put in place to comply with the obligations under Directive 2014/65/EU and to take appropriate measures to address any deficiencies. The allocation of significant functions among senior managers shall clearly establish who is responsible for overseeing and maintaining the firm’s organisational requirements. Records of the allocation of significant functions shall be kept up-to-date. 2 Investment firms shall ensure that their senior management receive on a frequent basis, and at least annually, written reports on the matters covered by Articles 22, 23 and 24 indicating in particular whether the appropriate remedial measures have been taken in the event of any deficiencies. 3 Investment firms shall ensure that where there is a supervisory function, it receives written reports on the matters covered by Articles 22, 23 and 24 on a regular basis. 4 For the purposes of this Article, the supervisory function shall be the function within an investment firm responsible for the supervision of its senior management. EU Article 30 - Scope of critical and important operational functions

FCA 2017/xx
1 For the purposes of the first subparagraph of Article 16(5) of Directive 2014/65/EU, an operational function shall be regarded as critical or important where a defect or failure in its performance would materially impair the continuing compliance of an investment firm with the conditions and obligations of its authorisation or its other obligations under Directive 2014/65/EU, or its financial performance, or the soundness or the continuity of its investment services and activities. 2 Without prejudice to the status of any other function, the following functions shall not be considered as critical or important for the purposes of paragraph 1:
(a) the provision to the firm of advisory services, and other services which do not form part of the investment business of the firm, including the provision of legal advice to the firm, the training of personnel of the firm, billing services and the security of the firm's premises and personnel; (b) the purchase of standardised services, including market information services and the provision of price feeds. EU Article 31 - Outsourcing critical or important operational functions 1 Investment firms outsourcing critical or important operational functions shall remain fully responsible for discharging all of their obligations under Directive 2014/65/EU and shall comply with the following conditions:
(a) the outsourcing does not result in the delegation by senior management of its responsibility; (b) the relationship and obligations of the investment firm towards its clients under the terms of Directive 2014/65/EU is not altered; (c) the conditions with which the investment firm must comply in order to be authorised in accordance with Article 5 of Directive 2014/65/EU, and to remain so, are not undermined; (d) none of the other conditions subject to which the firm's authorisation was granted is removed or modified. 2 Investment firms shall exercise due skill, care and diligence when entering into, managing or terminating any arrangement for the outsourcing to a service provider of critical or important operational functions and shall take the necessary steps to ensure that the following conditions are satisfied:
(a) the service provider has the ability, capacity, sufficient resources, appropriate organisational structure supporting the performance of the outsourced functions, and any authorisation required by law to perform the outsourced functions, reliably and professionally;

FCA 2017/xx
(b) the service provider carries out the outsourced services effectively and in compliance with applicable law and regulatory requirements, and to this end the firm has established methods and procedures for assessing the standard of performance of the service provider and for reviewing on an ongoing basis the services provided by the service provider; (c) the service provider properly supervises the carrying out of the outsourced functions, and adequately manage the risks associated with the outsourcing; (d) appropriate action is taken where it appears that the service provider may not be carrying out the functions effectively or in compliance with applicable laws and regulatory requirements; (e) the investment firm effectively supervises the outsourced functions or services and manage the risks associated with the outsourcing and to this end the firm retains the necessary expertise and resources to supervise the outsourced functions effectively and manage those risks; (f) the service provider has disclosed to the investment firm any development that may have a material impact on its ability to carry out the outsourced functions effectively and in compliance with applicable laws and regulatory requirements; (g) the investment firm is able to terminate the arrangement for outsourcing where necessary, with immediate effect when this is in the interests of its clients, without detriment to the continuity and quality of its provision of services to clients; (h) the service provider cooperates with the competent authorities of the investment firm in connection with the outsourced functions; (i) the investment firm, its auditors and the relevant competent authorities have effective access to data related to the outsourced functions, as well as to the relevant business premises of the service provider, where necessary for the purpose of effective oversight in accordance with this article, and the competent authorities are able to exercise those rights of access; (j) the service provider protects any confidential information relating to the investment firm and its clients; (k) the investment firm and the service provider have established, implemented and maintained a contingency plan for disaster recovery and periodic testing of backup facilities, where that is necessary having regard to the function, service or activity that has been outsourced; (l) the investment firm has ensured that the continuity and quality of the outsourced functions or services are maintained also in the event of termination of the outsourcing either by transferring the outsourced

FCA 2017/xx functions or services to another third party or by performing them itself. 3 The respective rights and obligations of the investment firms and of the service provider shall be clearly allocated and set out in a written agreement. In particular, the investment firm shall keep its instruction and termination rights, its rights of information, and its right to inspections and access to books and premises. The agreement shall ensure that outsourcing by the service provider only takes place with the consent, in writing, of the investment firm. 4 Where the investment firm and the service provider are members of the same group, the investment firm may, for the purposes of complying with this
Article and Article 32, take into account the extent to which the firm controls
the service provider or has the ability to influence its actions. 5 Investment firms shall make available on request to the competent authority all information necessary to enable the authority to supervise the compliance of the performance of the outsourced functions with the requirements of Directive 2014/65/EU and its implementing measures. EU Article 32 - Service providers located in third countries 1 In addition to the requirements set out in Article 31, where an investment firm outsources functions related to the investment service of portfolio management provided to clients to a service provider located in a third country, that investment firm ensures that the following conditions are satisfied:
(a) the service provider is authorised or registered in its home country to provide that service and is effectively supervised by a competent authority in that third country; (b) there is an appropriate cooperation agreement between the competent authority of the investment firm and the supervisory authority of the service provider. 2 The cooperation agreement referred to in point (b) of paragraph 1 shall ensure that the competent authorities of the investment firm are able, at least, to:
(a) obtain on request the information necessary to carry out their supervisory tasks pursuant to Directive 2014/65/EU and Regulation (EU) No 600/2014; (b) obtain access to the documents relevant for the performance of their supervisory duties maintained in the third country; (c) receive information from the supervisory authority in the third country as soon as possible for the purpose of investigating apparent breaches of the requirements of Directive 2014/65/EU and its implementing measures and Regulation (EU) No 600/2014;

FCA 2017/xx
(d) cooperate with regard to enforcement, in accordance with the national and international law applicable to the supervisory authority of the third country and the competent authorities in the Union in cases of breach of the requirements of Directive 2014/65/EU and its implementing measures and relevant national law. 3 Competent authorities shall publish on their website a list of the supervisory authorities in third countries with which they have a cooperation agreement referred to in point (b) of paragraph 1. Competent authorities shall update cooperation agreements concluded before the date of entry into application of this Regulation within six months from that date. EU Article 72 - Retention of records 1 The records shall be retained in a medium that allows the storage of information in a way accessible for future reference by the competent authority, and in such a form and manner that the following conditions are met:
(a) the competent authority is able to access them readily and to reconstitute each key stage of the processing of each transaction; (b) it is possible for any corrections or other amendments, and the contents of the records prior to such corrections or amendments, to be easily ascertained; (c) it is not possible for the records otherwise to be manipulated or altered; (d) it allows IT or any other efficient exploitation when the analysis of the data cannot be easily carried out due to the volume and the nature of the data; and (e) the firm’s arrangements comply with the record keeping requirements irrespective of the technology used. 2 Investment firms shall keep at least the records identified in Annex I to this Regulation depending upon the nature of their activities. The list of records identified in Annex I to this Regulation is without prejudice to any other record-keeping obligations arising from other legislation. 3 Investment firms shall also keep records of any policies and procedures they are required to maintain pursuant to Directive 2014/65/EU, Regulation (EU) No 600/2014, Directive 2014/57/EU and Regulation (EU) No 596/2014 and their respective implementing measures in writing. Competent authorities may require investment firms to keep additional records to the list identified in Annex I to this Regulation.

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4 General organisational requirements
4.1 General requirements
…
Application to a common platform firm
4.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance apply as set out in the table below:
Subject Applicable rule or guidance
General requirements SYSC 4.1.1R, SYSC
4.1.1CR, SYSC 4.1.2R,
SYSC 4.1.2AAR
Business continuity SYSC 4.1.6R, SYSC 4.1.7R, SYSC 4.1.8G Audit committee SYSC 4.1.11G, SYSC 4.1.13G, SYSC 4.1.14G Persons who effectively direct the business SYSC 4.2.1R, SYSC 4.2.2R, SYSC 4.2.3G, SYSC 4.2.4G, SYSC 4.2.5G, SYSC 4.2.6R Responsibility of senior personnel SYSC 4.3.3G Management body SYSC 4.3A-1R to SYSC 4.3A.7R Nominations committee SYSC 4.3A.8R to SYSC 4.3A.11R Management responsibilities maps for UK relevant authorised persons SYSC 4.5 Management responsibilities maps for non-UK relevant authorised persons SYSC 4.6 Senior management responsibilities for UK relevant authorised persons SYSC 4.7 Handover procedures and material SYSC 4.9

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Application to a MiFID optional exemption firm and to a third country firm 4.1.-1 G For a MiFID optional exemption firm and a third country firm:
(1) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1); and (2) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). General requirements
4.1.1 R (1) A firm must have robust governance arrangements, which include a
clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing systems. … [Note: article 74 (1) of CRD, article 13 16(5) second paragraph of MiFID,
article 12(1)(a) of the UCITS Directive, and article 18(1) of AIFMD]
(3) Without prejudice to the ability of the FCA or any other relevant competent authority to require access to communications in accordance with MiFID and MiFIR, a common platform firm must have sound security mechanisms in place for the following, while maintaining the confidentiality of the data at all times:
(a) to guarantee the security and authentication of the means of transfer of information; (b) to minimise the risk of data corruption and unauthorised access; and (c) to prevent information leakage. [Note: article 16(5) third paragraph of MiFID] …
4.1.2 R For a common platform firm, the arrangements, processes and mechanisms
referred to in SYSC 4.1.1R must be comprehensive and proportionate to the nature, scale and complexity of the risks inherent in the business model and of the common platform firm's activities and must take into account the specific technical criteria described in SYSC 4.1.7R article 21(3) of the MiFID Org Regulation, SYSC 5.1.7R, SYSC 7 and whichever of the following as

FCA 2017/xx applicable:
(1) (for a firm to which SYSC 19A applies) SYSC 19A (IFPRU Remuneration Code); (2) (for a full-scope UK AIFM) SYSC 19B (AIFM Remuneration Code); (3) (for a firm to which SYSC 19C applies) SYSC 19C (BIPRU Remuneration Code); (4) (for a firm to which SYSC 19D applies) SYSC 19D (Dual-regulated firms Remuneration Code); (5) (for a firm to which the remuneration part of the PRA Rulebook applies) the remuneration part of the PRA Rulebook. [Note: article 74(2) of CRD] 4.1.2A G Other firms should take account of the comprehensiveness and proportionality rule (SYSC 4.1.2R) as if it were guidance (and as if "should" appeared in that rule rule instead of "must") as explained in SYSC 1 Annex 1 3.3 G R(1). … Mechanisms and procedures for a firm
4.1.4 R A firm (with the exception of a common platform firm and a sole trader who
does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)) must, taking into account the nature, scale and complexity of the business of the firm, and the nature and range of the financial services and activities undertaken in the course of that business:
(1) (if it is a common platform firm or a management company) establish, implement and maintain decision-making procedures and an organisational structure which clearly and in a documented manner specifies reporting lines and allocates functions and responsibilities; … (3) (if it is a common platform firm) establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the firm; and … [Note: articles 5(1) final paragraph, 5(1)(a), 5(1)(c) and 5(1)(e) of the MiFID implementing Directive and articles 4(1) final paragraph, 4(1)(a), 4(1)(c) and 4(1)(d) of the UCITS implementing Directive] 4.1.4A G A firm that is not a common platform firm or a management company should take into account the decision-making procedures and effective internal

FCA 2017/xx reporting rules (SYSC 4.1.4R (1), (3) and (4)) as if they were guidance (and as if "should" appeared in those rules rules instead of "must") as explained in SYSC 1 Annex 1 3.3G R(1).
4.1.5 R A MiFID investment firm and a management company must establish,
implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question. [Note: article 5(2) of the MiFID implementing Directive and article 4(2) of the UCITS implementing Directive] Business continuity
4.1.6 R A common platform firm must take reasonable steps to ensure continuity and
regularity in the performance of its regulated activities. To this end the common platform firm must employ appropriate and proportionate systems, resources and procedures. [Note: article 13 16(4) of MiFID]
4.1.7 R A common platform firm CRR firm and a management company must
establish, implement and maintain an adequate business continuity policy aimed at ensuring, in the case of an interruption to its systems and procedures, that any losses are limited, the preservation of essential data and functions, and the maintenance of its regulated activities, or, in the case of a management company, its collective portfolio management activities, or, where that is not possible, the timely recovery of such data and functions and the timely resumption of those activities. [Note: article 5(3) of the MiFID implementing Directive, annex V paragraph 13 of the Banking Consolidation Directive, article 4(3) of the UCITS implementing Directive and article 85(2) of the CRD] 4.1.7A G Other firms should take account of the business continuity rules (SYSC 4.1.6R and 4.1.7R) as if they were guidance (and as if "should" appeared in those rules rules instead of "must") as explained in SYSC 1 Annex 1 3.3G R(1).
4.1.8 G The matters dealt with in a business continuity policy should include:
…
(3) communication arrangements for internal and external concerned parties (including the appropriate regulator FCA, clients and the press); … (6) regular testing of the business continuity policy in an appropriate and proportionate manner in accordance with SYSC 4.1.10R and for a common platform firm with article 21(5) of the MiFID Org

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Regulation.
…
Accounting policies: management company
4.1.9 R A common platform firm and a management company must establish,
implement and maintain accounting policies and procedures that enable it, at the request of the FCA, to deliver in a timely manner to the FCA financial reports which reflect a true and fair view of its financial position and which comply with all applicable accounting standards and rules. [Note: article 5(4) of the MiFID implementing Directive and article 4(4) of the UCITS implementing Directive] Regular monitoring: management company
4.1.10 R A common platform firm and a management company must monitor and, on a
regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with SYSC 4.1.4R to SYSC 4.1.9R and take appropriate measures to address any deficiencies. [Note: article 5(5) of the MiFID implementing Directive and article 4(5) of the UCITS implementing Directive] Regular monitoring: other firms 4.1.10A G Other firms should take account of the regular monitoring rule (SYSC 4.1.10R) as if it were guidance (and as if "should" appeared in that rule rule instead of "must") as explained in SYSC 1 Annex 1 3.3G R(1), but ignoring the cross-reference to SYSC 4.1.5R and SYSC 4.1.9R. …
4.2 Persons who effectively direct the business
General requirement
4.2.1 R The senior personnel of a common platform firm, a management company, a
full-scope UK AIFM, or of the UK branch of a non-EEA bank must be of sufficiently good repute and sufficiently experienced as to ensure the sound and prudent management of the firm. [Note: article 9(1)(4) of MiFID, article 7(1)(b) of the UCITS Directive ,
article 8(1)(c) of AIFMD, article 11(1) second paragraph of the Banking
Consolidation Directive and article 13(1) 91(1) of the CRD] 4.2.1A G Other firms should take account of the senior personnel rule (SYSC 4.2.1R) as if it were guidance (and as if "should" appeared in that rule rule instead of "must") as explained in SYSC 1 Annex 1 3.3G R(1).

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…
Composition of management
4.2.2 R A common platform firm, a management company, a full-scope UK AIFM
and the UK branch of a non-EEA bank must ensure that its management is undertaken by at least two persons meeting the requirements laid down in SYSC 4.2.1R and, :
(a) for a full-scope UK AIFM, SYSC 4.2.7R; or (b) for a common platform firm, SYSC 4.3A.3R. [Note: article 9 (4) (6) first paragraph of MiFID, article 7(1)(b) of the UCITS Directive, article 8(1)(c) of AIFMD and article 13(1) of CRD] …
4.2.4 G At least two independent minds should be applied to the formulation and
implementation of the policies of a common platform firm, a management company, a full-scope UK AIFM and the UK branch of a non-EEA bank third country firm. Where a firm nominates just two individuals to direct its business, the appropriate regulator FCA will not regard them as both effectively directing the business where one of them makes some, albeit significant, decisions relating to only a few aspects of the business. Each should play a part in the decision-making process on all significant decisions. Both should demonstrate the qualities and application to influence strategy, day-to-day policy and its implementation. This does not require their day-today involvement in the execution and implementation of policy. It does, however, require involvement in strategy and general direction, as well as knowledge of, and influence on, the way in which strategy is being implemented through day-to-day policy.
4.2.5 G Where there are more than two individuals directing the business of a
common platform firm, a management company, a full-scope UK AIFM or the UK branch of a non-EEA bank third country firm, the appropriate regulator FCA does not regard it as necessary for all of these individuals to be involved in all decisions relating to the determination of strategy and general direction. However, at least two individuals should be involved in all such decisions. Both individuals' judgement should be engaged so that major errors leading to difficulties for the firm are less likely to occur. Similarly, each individual should have sufficient experience and knowledge of the business and the necessary personal qualities and skills to detect and resist any imprudence, dishonesty or other irregularities by the other individual. Where a single individual, whether a chief executive, managing director or otherwise, is particularly dominant in such a firm this will raise doubts about whether SYSC 4.2.2R is met. Alternative arrangements
4.2.6 R If a common platform firm, (other than a credit institution or AIFM

FCA 2017/xx investment firm) or the UK branch of a non-EEA bank third country firm, is:
(1) a natural person; or
(2) a legal person managed by a single natural person; then:
(3) it must have alternative arrangements in place which ensure:
(a) sound and prudent management of the firm ; and (b) adequate consideration of the interests of clients and the integrity of the market; and (4) the natural persons concerned must be of sufficiently good repute, possess sufficient knowledge, skills and experience and commit sufficient time to perform their duties. [Note: article 9 (4)(6) second paragraph of MiFID] …
4.3 Responsibility of senior personnel
4.3.1 R A firm (with the exception of a common platform firm and a sole trader who
does not employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)), when allocating functions internally, must ensure that senior personnel and, where appropriate, the supervisory function, are responsible for ensuring that the firm complies with its obligations under the regulatory system. In particular, senior personnel and, where appropriate, the supervisory function must assess and periodically review the effectiveness of the policies, arrangements and procedures put in place to comply with the firm's obligations under the regulatory system and take appropriate measures to address any deficiencies. [Note: article 9(1) of the MiFID implementing Directive and articles 9(1) and 9(3) of the UCITS implementing Directive]
4.3.2 R A common platform firm (with the exception of a sole trader who does not
employ any person who is required to be approved under section 59 of the Act (Approval for particular arrangements)) and a management company , must ensure that:
(1) its senior personnel receive on a frequent basis, and at least annually, written reports on the matters covered by SYSC 6.1.2R to SYSC 6.1.5R, SYSC 6.2.1R and , SYSC 7.1.2R, SYSC 7.1.3R and SYSC 7.1.5R to SYSC 7.1.7R, indicating in particular whether the appropriate remedial measures have been taken in the event of any deficiencies; and (2) the supervisory function, if any, receives on a regular basis written

FCA 2017/xx reports on the same matters.
[Note: article 9(2) and article 9(3) of the MiFID implementing Directive and articles 9(4) and 9(6) of the UCITS implementing Directive] 4.3.2A G Other firms should take account of the written reports rule (SYSC 4.3.2R) as if it were guidance (and as if "should" appeared in that rule rule instead of "must") as explained in SYSC 1 Annex 1 3.3G R(1). … 4.3A CRR firms Management body and nomination committee Management body 4.3A.-1 R In SYSC 4.3A.6R and SYSC 4.3A.8R a 'CRR firm common platform firm that is significant' significant means a significant IFPRU firm. 4.3A.1 R A CRR firm common platform firm must ensure that the management body defines, oversees and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the firm, including the segregation of duties in the organisation and the prevention of conflicts of interest, and in a manner that promotes the integrity of the market and the interests of clients. The firm must ensure that the management body:
(1) has overall responsibility for the firm; (2) approves and oversees implementation of the firm's strategic objectives, risk strategy and internal governance; (3) ensures the integrity of the firm's accounting and financial reporting systems, including financial and operational controls and compliance with the regulatory system. (4) oversees the process of disclosure and communications; (5) has responsibility for providing effective oversight of senior management . ; (6) monitors and periodically assesses:
(a) the adequacy and the implementation of the firm’s strategic objectives in the provision of investment services and/or activities and ancillary services; (b) the effectiveness of the firm's governance arrangements; and (c) the adequacy of the policies relating to the provision of services to clients, and

FCA 2017/xx takes appropriate steps to address any deficiencies.; and (7) has adequate access to information and documents which are needed to oversee and monitor management decision-making. [Note: article 88(1) of CRD and articles 9(1) and 9(3) of MiFID] 4.3A.1A R Without prejudice to SYSC 4.3A.1R, a common platform firm must ensure that the management body defines, approves and oversees:
(1) the organisation of the firm for the provision of investment services and/or activities and ancillary services, including the skills, knowledge and expertise required by personnel, the resources, the procedures and the arrangements for the provision of services and activities, taking into account the nature, scale and complexity of its business and all the requirements the firm has to comply with; (2) a policy as to services, activities, products and operations offered or provided, in accordance with the risk tolerance of the firm and the characteristics and needs of the firm’s clients to whom they will be offered or provided, including carrying out appropriate stress testing, where appropriate; and (3) a remuneration policy of persons involved in the provision of services to clients aiming to encourage responsible business conduct, fair treatment of clients as well as avoiding conflict of interest in the relationships with clients. [Note: article 9(3) of MiFID] 4.3A.2 R A CRR firm common platform firm must ensure that the chairman of the firm's management body does not exercise simultaneously the PRA’s Chief Executive function (controlled function ( SMF1) or chief executive function within the same firm, unless justified by the firm and authorised by the FCA. [Note: article 88(1)(e) of CRD and article 9(1) of MiFID] 4.3A.2A G A firm may apply to the FCA under section 138A of the Act to waive SYSC 4.3A.2R. 4.3A.3 R A CRR firm common platform firm must ensure that the members of the management body of the firm:
(1) are of sufficiently good repute;
(2) possess sufficient knowledge, skills and experience to perform their duties; (3) possess adequate collective knowledge, skills and experience to understand the firm's activities, including the main risks;

FCA 2017/xx
(4) reflect an adequately broad range of experiences; (5) commit sufficient time to perform their functions in the firm; and (6) act with honesty, integrity and independence of mind to effectively assess and challenge the decisions of senior management where necessary and to effectively oversee and monitor management decision-making. [Note: article 91(1)-(2) and (7)-(8) of CRD and article 9(1) and 9(4) of MiFID] 4.3A.4 R A CRR firm common platform firm must devote adequate human and financial resources to the induction and training of members of the management body. [Note: article 91(3) (9) of CRD and article 9(1) of MiFID] 4.3A.5 R A CRR firm common platform firm must ensure that the members of the management body of the firm do not hold more directorships than is appropriate taking into account individual circumstances and the nature, scale and complexity of the firm's activities. [Note: article 91(3) of CRD and article 9(1) of MiFID] 4.3A.6 R (1) A CRR firm common platform firm that is significant must ensure that the members of the management body of the firm do not hold more than one of the following combinations of directorship in any organisation at the same time:
(a) one executive directorship with two non-executive directorships; and (b) four non-executive directorships. (2) Paragraph (1) does not apply to members of the management body that represent the United Kingdom. [Note: article 91(3) of CRD and article 9(1) of MiFID] 4.3A.7 R For the purposes of SYSC 4.3A.5R and SYSC 4.3A.6R:
(1) directorships in organisations which do not pursue predominantly commercial objectives shall not count; and (2) the following shall count as a single directorship:
(a) executive or non-executive directorships held within the same group; or (b) executive or non-executive directorships held within:

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(i) firms that are members of the same institutional protection scheme provided that the conditions set out in article 113(7) of the CRR are fulfilled; or (ii) undertakings (including non-financial entities) in which the firm holds a qualifying holding. [Note: article 91(4) and (5) of CRD and article 9(1) of MiFID] Nomination Committee 4.3A.8 R A CRR firm common platform firm that is significant must:
(1) establish a nomination committee composed of members of the management body who do not perform any executive function in the firm; (2) ensure that the nomination committee is able to use any forms of resources the nomination committee deems appropriate, including external advice; and (3) ensure that the nomination committee receives appropriate funding. [Note: article 88(2) of CRD and article 9(1) of MiFID] 4.3A.9 R A CRR firm common platform firm that has a nomination committee must ensure that the nomination committee:
(1) engage engages a broad set of qualities and competences when recruiting members to the management body and for that purpose puts in place a policy promoting diversity on the management body; (2) identifies and recommends for approval, by the management body or by general meeting, candidates to fill management body vacancies, having evaluated the balance of knowledge, skills, diversity and experience of the management body; (3) prepares a description of the roles and capabilities for a particular appointment, and assesses the time commitment required; (4) decides on a target for the representation of the underrepresented gender in the management body and prepares a policy on how to increase the number of the underrepresented gender in the management body in order to meet that target; (5) periodically, and at least annually, assesses the structure, size, composition and performance of the management body and makes recommendations to the management body with regard to any changes; (6) periodically, and at least annually, assesses the knowledge, skills and experience of individual members of the management body and of

FCA 2017/xx the management body collectively, and reports this to the management body; (7) periodically reviews the policy of the management body for selection and appointment of senior management and makes recommendations to the management body; and (8) in performing its duties, and to the extent possible, on an ongoing basis, takes account of the need to ensure that the management body's decision making is not dominated by any one individual or small group of individuals in a manner that is detrimental to the interest of the firm as a whole ; . [Note: article 88(2) and article 91(10) of the CRD and article 9(1) of MiFID] 4.3A.10 R A CRR firm common platform firm that does not have a nomination committee must engage a broad set of qualities and competences when recruiting members to the management body. For that purpose a CRR firm common platform firm that does not have a nomination committee must put in place a policy promoting diversity on the management body. [Note: article 91(10) of CRD and article 9(1) of MiFID] …
4.7 Senior management responsibilities for UK relevant authorised persons:
allocation of responsibilities
…
4.7.7 R Table: FCA-prescribed senior management responsibilities
FCA-prescribed senior management responsibility Explanation Equivalent PRAprescribed senior management responsibility …
Part Two (applies to all firms except for small CRR firms and credit unions)
…
(7) Responsibility for:
(a) safeguarding the independence of; and (b) oversight of the performance of; the internal audit function, in accordance with SYSC This responsibility includes responsibility for:
(a) safeguarding the independence of; and (b) oversight of the performance of; PRA-prescribed senior management responsibility 4.1(15)

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6.2 (Internal Audit) or
article 24 of the MiFID
Org Regulation. a person approved to perform the PRA's Head of Internal Audit designated senior management function for the firm. (8) Responsibility for:
(a) safeguarding the independence of; and (b) oversight of the performance of; the compliance function in accordance with SYSC 6.1(Compliance) or article 22 of the MiFID Org Regulation. This responsibility includes responsibility for:
(a) safeguarding the independence of; and (b) oversight of the performance of; the person performing the compliance oversight function for the firm. PRA-prescribed senior management responsibility 4.1(16) … … 5 Employees, agents and other relevant persons
5.1 Skills, knowledge and expertise
…
Application to a common platform firm
5.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance apply as set out in the table below:
Subject Applicable rule or guidance
Segregation of functions SYSC 5.1.2G to SYSC 5.1.5AG, SYSC 5.1.7R, SYSC 5.1.8G to SYSC 5.1.11G Certification regime SYSC 5.2 Application to an MiFID optional exemption firm and to a third country firm 5.1.-1 G For a MiFID optional exemption firm and a third country firm:

FCA 2017/xx
(a) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1); and (b) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and SYSC 1 Annex 1 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). Segregation of functions
5.1.1 R A firm (other than a common platform firm) must employ personnel with the
skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them. [Note: article 5(1)(d) of the MiFID implementing Directive, articles 12(1)(a) and 14(1)(c) of the UCITS Directive and article 5(1) of the UCITS implementing Directive] … 5.1.5A G If a firm requires employees who are not subject to a qualification requirement in TC to pass a relevant examination from the list of recommended examinations maintained by the Financial Skills Partnership, the appropriate regulator FCA will take that into account when assessing whether the firm has ensured that the employee satisfies the knowledge component of the competent employees rule. Segregation of functions
5.1.6 R A common platform firm and a management company must ensure that the
performance of multiple functions by its relevant persons does not and is not likely to prevent those persons from discharging any particular functions soundly, honestly and professionally. [Note: article 5(1)(g) of the MiFID implementing Directive and article 5(3) of the UCITS implementing Directive]
5.1.7 R The senior personnel of a common platform firm must define arrangements
concerning the segregation of duties within the firm and the prevention of conflicts of interest. [Note: article 88 of the CRD and annex V paragraph 1 of the Banking Consolidation Directive article 9(1) of MiFID] 5.1.7A G Other firms should take account of the segregation of functions rules (SYSC 5.1.6R and SYSC 5.1.7R) as if they were guidance (and as if “should” appeared in those rules rules instead of “must”) as explained in SYSC 1
Annex 1 3.3G R(1).
Segregation of functions: additional guidance

FCA 2017/xx
…
5.1.11 G Where a common platform firm outsources its internal audit function, it
should take reasonable steps to ensure that every individual involved in the performance of this service is independent from the individuals who perform its external audit. This should not prevent services from being undertaken by a firm's external auditors provided that:
…
Awareness of procedures: management company
5.1.12 R A common platform firm and a management company must ensure that its
relevant persons are aware of the procedures which must be followed for the proper discharge of their responsibilities. [Note: article 5(1)(b) of the MiFID implementing Directive and article 4(1)(b) of the UCITS implementing Directive] Awareness of procedures: other firms 5.1.12A G Other firms should take account of the rule concerning awareness of procedures (SYSC 5.1.12R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). General
5.1.13 R The systems, internal control mechanisms and arrangements established by a
firm (other than a common platform firm) in accordance with this chapter must take into account the nature, scale and complexity of its business and the nature and range of financial services and activities undertaken in the course of that business. [Note: article 5(1) final paragraph of the MiFID implementing Directive and articles 4(1) final paragraph and 5(4) of the UCITS implementing Directive]
5.1.14 R A common platform firm and a management company must monitor and, on a
regular basis, evaluate the adequacy and effectiveness of its systems, internal control mechanisms and arrangements established in accordance with this
chapter, and take appropriate measures to address any deficiencies.
[Note: article 5(5) of the MiFID implementing Directive and articles article 4(5) of the UCITS implementing Directive]
5.1.15 G Other firms should take account of the rule requiring monitoring and
evaluation of the adequacy and effectiveness of systems (SYSC 5.1.14R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1).

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6 Compliance, internal audit and financial crime
6.1 Compliance
…
Application to a common platform firm
6.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance apply as set out in the table below:
Subject Applicable rule or guidance
Adequate policy and procedures SYSC 6.1.1R, SYSC 6.1.1AG Compliance function SYSC 6.1.4-AG, SYSC 6.1.7R Internal audit SYSC 6.2.2G Financial crime SYSC 6.3.1R to SYSC 6.3.11G Application to an MiFID optional exemption firm and to a third country firm 6.1.-1 G For a MiFID optional exemption firm and a third country firm:
(1) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1); and (2) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). Adequate policy and procedures
6.1.1 R A firm must establish, implement and maintain adequate policies and
procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives (or where applicable, tied agents) with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime. [Note: article 13 16(2) of MiFID and article 12(1)(a) of the UCITS Directive] …
6.1.2 R A common platform firm and a management company must, taking into
account the nature, scale and complexity of its business, and the nature and range of financial services and activities undertaken in the course of that

FCA 2017/xx business, establish, implement and maintain adequate policies and procedures designed to detect any risk of failure by the firm to comply with its obligations under the regulatory system, as well as associated risks, and put in place adequate measures and procedures designed to minimise such risks and to enable the appropriate regulator FCA to exercise its powers effectively under the regulatory system and to enable any other competent authority to exercise its powers effectively under MiFID or the UCITS Directive. [Note: article 6(1) of the MiFID implementing Directive and article 10(1) of the UCITS implementing Directive] 6.1.2A G Other firms should take account of the adequate policies and procedures rule (SYSC 6.1.2R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). Compliance function
6.1.3 R A common platform firm and a management company must maintain a
permanent and effective compliance function which operates independently and which has the following responsibilities:
(1) to monitor and, on a regular basis, to assess the adequacy and effectiveness of the measures and procedures put in place in accordance with SYSC 6.1.2R, and the actions taken to address any deficiencies in the firm's compliance with its obligations; and (2) to advise and assist the relevant persons responsible for carrying out regulated activities to comply with the firm's obligations under the regulatory system. [Note: article 6(2) of the MiFID implementing Directive and article 10(2) of the UCITS implementing Directive] 6.1.3A G (1) Other firms should take account of the compliance function rule (SYSC 6.1.3R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). …
6.1.4 R In order to enable the compliance function to discharge its responsibilities
properly and independently, a common platform firm and a management company must ensure that the following conditions are satisfied:
(1) the compliance function must have the necessary authority, resources, expertise and access to all relevant information; (2) a compliance officer must be appointed and must be responsible for the compliance function and for any reporting as to compliance required by SYSC 4.3.2R; (3) the relevant persons involved in the compliance functions must not be

FCA 2017/xx involved in the performance of the services or activities they monitor; (4) the method of determining the remuneration of the relevant persons involved in the compliance function must not compromise their objectivity and must not be likely to do so. [Note: article 6(3) first paragraph of the MiFID implementing Directive and
article 10(3) of the UCITS implementing Directive]
6.1.4-A G In setting the method of determining the remuneration of relevant persons involved in the compliance function:
(1) firms that SYSC 19A applies to will also need to comply with the Remuneration Code; (2) BIPRU firms that SYSC 19C applies to will also need to comply with the BIPRU Remuneration Code; (3) firms that SYSC 19D applies to will also need to comply with the dualregulated firms Remuneration Code; and (4) firms that the remuneration part of the PRA Rulebook Rulebook applies to will also need to comply with it. … 6.1.4-C G (1) This guidance is relevant to a relevant authorised person required to appoint a compliance officer under SYSC 6.1.4R or article 22(3) of the MiFID Org Regulation as applicable. …
6.1.5 R A common platform firm and a management company need not comply with
SYSC 6.1.4R(3) or SYSC 6.1.4R(4) if it is able to demonstrate that in view of the nature, scale and complexity of its business, and the nature and range of financial services and activities, the requirements under those rules are not proportionate and that its compliance function continues to be effective. [Note: article 6(3) second paragraph of the MiFID implementing Directive and article 10(3) second paragraph of the UCITS implementing Directive]
6.1.6 G Other firms should take account of the proportionality rule (SYSC 6.1.5R) as
if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3GR(1).
6.1.7 R …
(2) References to the regulatory system in SYSC 6.1.1R, SYSC 6.1.2R and SYSC 6.1.3R apply in respect of a firm's branch as if regulatory system includes a Host State's requirements under MiFID and the MiFID implementing Directive MiFID Org Regulation which are applicable to the investment services and/or activities conducted from the firm's

FCA 2017/xx branch.
[Note: article 13(2) 16 of MiFID]
6.2 Internal audit
6.2.1 R A common platform firm and a management company must, where
appropriate and proportionate in view of the nature, scale and complexity of its business and the nature and range of its financial services and activities, undertaken in the course of that business, establish and maintain an internal audit function which is separate and independent from the other functions and activities of the firm and which has the following responsibilities:
…
[Note: article 8 of the MiFID implementing Directive and article 11 of the UCITS implementing Directive] 6.2.1A G Other firms should take account of the internal audit rule (SYSC 6.2.1R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). 6.2.1B G (1) This guidance is relevant to a relevant authorised person required to establish and maintain an internal audit function under SYSC 6.2.1R
article 24 of the MiFID Org Regulation.
6.2.2 G (1) The term 'internal audit function' in SYSC 6.2.1R (and SYSC 4.1.11G),
and for a common platform firm in article 24 of the MiFID Org Regulation, refers to the generally understood concept of internal audit within a firm, that is, the function of assessing adherence to and the effectiveness of internal systems and controls, procedures and policies. … … 7 Risk control
7.1 Risk control
…
Application to a common platform firm
7.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance apply as set out in the table below:

FCA 2017/xx
Subject Applicable rule or guidance
Risk assessment SYSC 7.1.1G
Risk management SYSC 7.1.4R, SYSC 7.1.4AG Risk control: remuneration SYSC 7.1.7BG, SYSC 7.1.7BBG Risk control: additional provisions SYSC 7.1.7CG, SYSC 7.1.8G, SYSC 7.1.9R to SYSC 7.1.16R Additional rules for CCR firms SYSC 7.1.16CR to SYSC 7.1.22R Application to an MiFID optional exemption firm and to a third country firm 7.1.-1 G For a MiFID optional exemption firm and a third country firm:
(1) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1); and (2) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). Risk assessment
7.1.1 G SYSC 4.1.1R requires a firm to have effective processes to identify, manage,
monitor and report the risks it is or might be exposed to.
7.1.2 R A common platform firm UCITS investment firm must establish, implement
and maintain adequate risk management policies and procedures, including effective procedures for risk assessment, which identify the risks relating to the firm's activities, processes and systems, and where appropriate, set the level of risk tolerated by the firm. [Note: article 7(1)(a) of the MiFID implementing Directive, article 13(5) second paragraph of MiFID] 7.1.2A G Other firms should take account of the risk management policies and procedures rule (SYSC 7.1.2R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). … Risk management
7.1.3 R A common platform firm UCITS investment firm must adopt effective
arrangements, processes and mechanisms to manage the risk relating to the firm's activities, processes and systems, in light of that level of risk tolerance.

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[Note: article 7(1)(b) of the MiFID implementing Directive] … 7.1.4B G Other firms should take account of the risk management rules (SYSC 7.1.3R and SYSC 7.1.4R) as if they were guidance (and as if "should" appeared in those rules rules instead of "must") as explained in SYSC 1 Annex 1 3.3G R(1).
7.1.5 R A common platform firm UCITS investment firm must monitor the following:
(1) the adequacy and effectiveness of the firm's risk management policies and procedures; (2) the level of compliance by the firm and its relevant persons with the arrangements, processes and mechanisms adopted in accordance with SYSC 7.1.3R; (3) the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant persons to comply with such arrangements or processes and mechanisms or follow such policies and procedures. [Note: article 7(1)(c) of the MiFID implementing Directive]
7.1.6 R A common platform firm UCITS investment firm must, where appropriate and
proportionate in view of the nature, scale and complexity of its business and the nature and range of the investment services and/or activities undertaken in the course of that business, establish and maintain a risk management function that operates independently and carries out the following tasks:
(1) implementation of the policies and procedures referred to in SYSC 7.1.2R to SYSC 7.1.5R; and (2) provision of reports and advice to senior personnel in accordance with SYSC 4.3.2R. [Note: MiFID implementing Directive Article 7(2) first paragraph]
7.1.7 R Where a common platform firm UCITS investment firm is not required under
SYSC 7.1.6R to maintain a risk management function that functions independently, it must nevertheless be able to demonstrate that the policies and procedures which it has adopted in accordance with SYSC 7.1.2R to SYSC 7.1.5R satisfy the requirements of those rules and are consistently effective. [Note: article 7(2) second paragraph of the MiFID implementing Directive] 7.1.7A G Other firms should take account of the risk management rules (SYSC 7.1.5R to SYSC 7.1.7R) as if they were guidance (and as if “should” appeared in

FCA 2017/xx those rules rules instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). … Risk control: additional provisions 7.1.7C G …
7.1.8 G …
(2) The term 'risk management function' in SYSC 7.1.6R and SYSC 7.1.7R, and for a common platform firm in article 23(2) of the MiFID Org Regulation, refers to the generally understood concept of risk assessment within a firm, that is, the function of setting and controlling risk exposure. … …
7.1.21 R (1) A CRR firm's risk management function (SYSC 7.1.6R article 23 of the
MiFID Org Regulation) must be independent from the operational functions and have sufficient authority, stature, resources and access to the management body. … … 8 Outsourcing
8.1 General outsourcing requirements
…
Application to a common platform firm
8.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance apply as set out in the table below:
Subject Applicable rule or guidance
General requirements SYSC 8.1.1R, SYSC 8.1.2G, SYSC 8.1.3G, SYSC 8.1.12G Application to an MiFID optional exemption firm and to a third country firm

FCA 2017/xx
8.1.-1 G For a MiFID optional exemption firm and a third country firm:
(1) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1); and (2) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). General requirements
8.1.1 R A common platform firm must:
(1) when relying on a third party for the performance of operational functions which are critical for the performance of regulated activities, listed activities or ancillary services (in this chapter "relevant services and activities") on a continuous and satisfactory basis, ensure that it takes reasonable steps to avoid undue additional operational risk; and (2) not undertake the outsourcing of important operational functions in such a way as to impair materially:
(a) the quality of its internal control; and (b) the ability of the appropriate regulator FCA to monitor the firm's compliance with all obligations under the regulatory system and, if different, of a competent authority to monitor the firm's compliance with all obligations under MiFID. [Note: article 13 16(5) first paragraph of MiFID] 8.1.1A G Other firms should take account of the outsourcing rule (SYSC 8.1.1R) as if it were guidance (and as if “should” appeared in that rule rule instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1). …
8.1.3 G SYSC 4.1.1R requires a firm to have effective processes to identify, manage,
monitor and report risks and internal control mechanisms. Except in relation to those functions described in SYSC 8.1.5R and (for a common platform firm in article 30(2) of the MiFID Org Regulation), where a firm relies on a third party for the performance of operational functions which are not critical or important for the performance of relevant services and activities (see SYSC 8.1.1R(1)) on a continuous and satisfactory basis, it should take into account, in a manner that is proportionate given the nature, scale and complexity of the outsourcing, the rules in this section in complying with that requirement.
8.1.4 R For the purposes of this chapter an operational function is regarded as critical
or important if a defect or failure in its performance would materially impair the continuing compliance of a firm (other than a common platform firm )

FCA 2017/xx with the conditions and obligations of its authorisation or its other obligations under the regulatory system, or its financial performance, or the soundness or the continuity of its relevant services and activities. [Note: article 13(1) of the MiFID implementing Directive]
8.1.5 R Without For a UCITS investment firm and without prejudice to the status of
any other function, the following functions will not be considered as critical or important for the purposes of this chapter:
(1) the provision to the firm of advisory services, and other services which do not form part of the relevant services and activities of the firm, including the provision of legal advice to the firm, the training of personnel of the firm, billing services and the security of the firm's premises and personnel; (2) the purchase of standardised services, including market information services and the provision of price feeds; [Note: article 13(2) of the MiFID implementing Directive] (3) the recording and retention of relevant telephone conversations or electronic communications subject to COBS 11.8 [SYSC 10A]. 8.1.5A G Other firms should take account of the critical functions rules (SYSC 8.1.4R and SYSC 8.1.5R) as if they were guidance (and as if “should” appeared in those rules rules instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1).
8.1.6 R If a firm (other than a common platform firm) outsources critical or important
operational functions or any relevant services and activities, it remains fully responsible for discharging all of its obligations under the regulatory system and must comply, in particular, with the following conditions:
(1) the outsourcing must not result in the delegation by senior personnel of their responsibility; (2) the relationship and obligations of the firm towards its clients under the regulatory system must not be altered; (3) the conditions with which the firm must comply in order to be authorised, and to remain so, must not be undermined; (4) none of the other conditions subject to which the firm's authorisation was granted must be removed or modified. [Note: article 14(1) of the MiFID implementing Directive] 8.1.6A G A UCITS investment firm should take account of the provisions that apply to a common platform firm in relation to its MiFID business in accordance with SYSC 8.1-2G.

FCA 2017/xx
8.1.7 R A common platform firm UCITS investment firm must exercise due skill and
care and diligence when entering into, managing or terminating any arrangement for the outsourcing to a service provider of critical or important operational functions or of any relevant services and activities. [Note: article 14(2) first paragraph of the MiFID implementing Directive]
8.1.8 R A common platform firm UCITS investment firm must in particular take the
necessary steps to ensure that the following conditions are satisfied:
…
(8) the service provider must co-operate with the appropriate regulator FCA and any other relevant competent authority in connection with the outsourced activities; (9) the firm, its auditors, the appropriate regulator FCA and any other relevant competent authority must have effective access to data related to the outsourced activities, as well as to the business premises of the service provider; and the appropriate regulator FCA and any other relevant competent authority must be able to exercise those rights of access; … [Note: article 14(2) second paragraph of the MiFID implementing Directive]
8.1.9 R A common platform firm UCITS investment firm must ensure that the
respective rights and obligations of the firm and of the service provider are clearly allocated and set out in a written agreement. [Note: article 14(3) of the MiFID implementing Directive]
8.1.10 R If a common platform firm UCITS investment firm and the service provider
are members of the same group, the firm may, for the purpose of complying with SYSC 8.1.7R to SYSC 8.1.11R and SYSC 8.2 and SYSC 8.3, take into account the extent to which the common platform firm UCITS investment firm controls the service provider or has the ability to influence its actions. [Note: article 14(4) of the MiFID implementing Directive]
8.1.11 R A firm (other than a common platform firm) must make available on request
to the appropriate regulator FCA and any other relevant competent authority all information necessary to enable the appropriate regulator FCA and any other relevant competent authority to supervise the compliance of the performance of the outsourced activities with the requirements of the regulatory system. [Note: article 14(5) of the MiFID implementing Directive] 8.1.11A G Other firms should take account of the outsourcing of important operational

FCA 2017/xx functions rules (SYSC 8.1.7R to SYSC 8.1.11R) as if they were guidance (and as if “should” appeared in those rules rules instead of “must”) as explained in SYSC 1 Annex 1 3.3G R(1).
8.1.12 G As SUP 15.3.8G explains, a firm should notify the appropriate regulator
FCA when it intends to rely on a third party for the performance of operational functions which are critical or important for the performance of relevant services and activities on a continuous and satisfactory basis. [Note: recital 20 of 44 to the MiFID implementing Directive MiFID Org Regulation] … SYSC 8.2 and SYSC 8.3 are deleted in their entirety. The deleted text is not shown. Amend the following as shown. 9 Record-keeping
9.1 General rules on record-keeping
Application to a common platform firm
9.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance apply as set out in the table below:
Subject Applicable rule or guidance
General requirements SYSC 9.1.1AR
Guidance on record-keeping SYSC 9.1.4G, SYSC 9.1.5G, SYSC 9.1.6G Application to an MiFID optional exemption firm and to a third country firm 9.1.-1 G For a MiFID optional exemption firm and a third country firm:
(1) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1); and

FCA 2017/xx
(2) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). General requirements
9.1.1 R A firm (other than a common platform firm) must arrange for orderly
records to be kept of its business and internal organisation, including all services and transactions undertaken by it, which must be sufficient to enable the appropriate regulator FCA or any other relevant competent authority under MiFID or the UCITS Directive to monitor the firm's compliance with the requirements under the regulatory system, and in particular to ascertain that the firm has complied with all obligations with respect to clients. [Note: article 13(6) of MiFID, article 5(1)(f) of the MiFID implementing Directive, article 12(1)(a) of the UCITS Directive and article 4(1)(e) of the UCITS implementing Directive] 9.1.1A R (1) A common platform firm must arrange for records to be kept of all services, activities and transactions undertaken by it. (2) The records in (1) must be sufficient to enable the FCA to fulfil its supervisory tasks and to perform the enforcement actions under the regulatory system including MiFID, MiFIR and the Market Abuse Regulation, and in particular to ascertain that the common platform firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market. [Note: article 16(6) of MiFID]
9.1.2 R A common platform firm must retain all records kept by it under this
chapter in relation to its MiFID business for a period of at least five years.
[Note: article 51(1) of the MiFID implementing Directive]
9.1.3 R In relation to its MiFID business, a common platform firm must retain
records in a medium that allows the storage of information in a way accessible for future reference by the appropriate regulator or any other relevant competent authority under MiFID, and so that the following conditions are met:
(1) the appropriate regulator or any other relevant competent authority under MiFID must be able to access them readily and to reconstitute each key stage of the processing of each transaction; (2) it must be possible for any corrections or other amendments, and the contents of the records prior to such corrections and amendments, to be easily ascertained; (3) it must not be possible for the records otherwise to be manipulated

FCA 2017/xx or altered. [deleted]
[Note: article 51(2) of the MiFID implementing Directive] Guidance on record-keeping …
9.1.6 G Schedule 1 to each module of the Handbook sets out a list summarising the
record-keeping requirements of that module. A common platform firm should also refer to the record-keeping requirements in the MiFID Org Regulation. [Note: article 51(3) of MiFID implementing Directive]
9.1.7 G The Committee of European Securities Regulators (CESR) has issued
recommendations on the list of minimum records under Article 51(3) of the MiFID implementing Directive. [deleted] 10 Conflicts of interest
10.1 Application
Application to a common platform firm
10.1.-2 G For a common platform firm:
(1) the MiFID Org Regulation applies, as summarised in SYSC 1 Annex 1 3.2G, SYSC 1 Annex 1 3.2-AR and SYSC 1 Annex 1 3.2-BR; and (2) the rules and guidance in the table below apply:
Subject Applicable rule or guidance
Provision of services SYSC 10.1.2G
Identifying conflicts SYSC 10.1.3R
Types of conflicts SYSC 10.1.5G
Managing conflicts SYSC 10.1.7R
Conflicts policy SYSC 10.1.12G
Application to a MiFID optional exemption firm and to a third-country firm 10.1.-1 G For a MiFID optional exemption firm and a third country firm:
(1) the rules and guidance in this chapter apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(1);

FCA 2017/xx and
(2) those articles of the MiFID Org Regulation in SYSC 1 Annex 1 2.8AR and 3.2CR apply to them as if they were rules or as guidance in accordance with SYSC 1 Annex 1 3.2CR(2). General application
10.1.1 R (1) This section applies to a firm which provides services to its clients in
the course of carrying on regulated activities or ancillary activities or providing ancillary services (but only where the ancillary services constitute MiFID business). (2) This section also applies to a management company. [Note: The provisions in SYSC 10.1 also implement articles 74(1) and 88 of CRD and as applied under the discretion in the third paragraph of article 95(2) of the EU CRR, BCD article 22 and BCD Annex V paragraph 1] 10.1.1A R This section also applies to:
(1) a full-scope UK AIFM of:
(a) a UK AIF;
(b) an EEA AIF managed or marketed from an establishment in the UK; and (c) a non-EEA AIF; and (2) an incoming EEA AIFM branch which manages or markets a UK AIF. Requirements only apply if a service is provided
10.1.2 G The requirements in this section only apply where a service is provided by a
firm. The status of the client to whom the service is provided (as a retail client, professional client or eligible counterparty) is irrelevant for this purpose. [Note: recital 25 of MiFID implementing Directive recital 46 to the MiFID Org Regulation] Identifying conflicts
10.1.3 R A firm must take all reasonable appropriate steps to identify and to prevent
or manage conflicts of interest between:
(1) the firm, including its managers, employees and appointed representatives (or where applicable, tied agents), or any person directly or indirectly linked to them by control, and a client of the firm; or

FCA 2017/xx
(2) one client of the firm and another client; that arise or may arise in the course of the firm providing any service referred to in SYSC 10.1.1R including those caused by the receipt of inducements from third parties or by the firm’s own remuneration and other incentive structures. [Note: article 18 23(1) of MiFID] Types of conflicts
10.1.4 R For the purposes of identifying the types of conflict of interest that arise, or
may arise, in the course of providing a service and whose existence may entail a material risk of damage to the interests of a client, a common platform firm and a management company must take into account, as a minimum, whether the firm or a relevant person, or a person directly or indirectly linked by control to the firm:
(1) is likely to make a financial gain, or avoid a financial loss, at the expense of the client; (2) has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client's interest in that outcome; (2A) in the case of a management company providing collective portfolio management services for a UCITS scheme, (2) also applies where the service is provided to, or the transaction is carried out on behalf of, a client other than the UCITS scheme; (3) has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client; (4) carries on the same business as the client; or in the case of a management company, carries on the same activities for the UCITS scheme and for another client or clients which are not UCITS schemes; or (5) receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services, other than the standard commission or fee for that service. The conflict of interest may result from the firm or person providing a service referred to in SYSC 10.1.1R or engaging in any other activity or, in the case of a management company, whether as a result of providing collective portfolio management services or otherwise. [Note: article 21 of MiFID implementing Directive and article 17(1) of the UCITS implementing Directive]

FCA 2017/xx
10.1.4A G Other firms (except common platform firms and UCITS management companies) should take account of the rule on the types of conflicts (see SYSC 10.1.4R) as if it were guidance (and as if "should" appeared in that rule instead of "must") as explained in SYSC 1 Annex 1 3.3G, except when they produce or arrange the production of investment research in accordance with COBS 12.2, or produce or disseminate non-independent research in accordance with COBS 12.3 (see SYSC 10.1.16R) in accordance with SYSC 1 Annex 1 3.2BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R.
10.1.5 G The circumstances which should be treated as giving rise to a conflict of
interest cover cases where there is a conflict between the interests of the firm or certain persons connected to the firm or the firm's group and the duty the firm owes to a client; or between the differing interests of two or more of its clients, to whom the firm owes in each case a duty. It is not enough that the firm may gain a benefit if there is not also a possible disadvantage to a client, or that one client to whom the firm owes a duty may make a gain or avoid a loss without there being a concomitant possible loss to another such client. [Note: recital 24 of MiFID implementing Directive 45 to the MiFID Org Regulation] Record of conflicts
10.1.6 R A common platform firm and a management company must keep and
regularly update a record of the kinds of service or activity carried out by or on behalf of that firm in which a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an ongoing service or activity, may arise. [Note: article 23 of MiFID implementing Directive and article 20(1) of the UCITS implementing Directive] 10.1.6A G Other firms (other than common platform firms) should also take account of the rule on records of conflicts (see SYSC 10.1.6R) as if it were guidance (and as if "should" appeared in that rule instead of "must", (as explained in SYSC 1 Annex 1 3.3G), except when they produce or arrange the production of investment research in accordance with COBS 12.2, or produce or disseminate non-independent research in accordance with COBS 12.3 (see SYSC 10.1.16R) in accordance with SYSC 1 Annex 1 3.2BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R). 10.1.6B G A firm (other than a common platform firm) should ensure that its management body receives on a frequent basis, and at least annually, written reports on all situations referred to in SYSC 10.1.6R. Managing conflicts
10.1.7 R A firm must maintain and operate effective organisational and
administrative arrangements with a view to taking all reasonable steps to

FCA 2017/xx prevent conflicts of interest as defined in SYSC 10.1.3R from constituting or giving rise to a material risk of damage to adversely affecting the interests of its clients. [Note: article 13 16(3) of MiFID] Disclosure of conflicts
10.1.8 R (1) If arrangements made by a firm under SYSC 10.1.7R to manage
conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, the firm must clearly disclose the general nature and/or sources of conflicts of interest following to the client before undertaking business for the client:
(a) the general nature or sources of conflicts of interest, or both; and (b) the steps taken to mitigate those risks. (2) The disclosure must:
(a) be made in a durable medium; and
(b) clearly state that the organisational and administrative arrangements established by the firm to prevent or manage that conflict are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented; (c) include specific description of the conflicts of interest that arise in the provision of investment services or ancillary services; (d) explain the risks to the client that arise as a result of the conflicts of interest; and (e) include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises. (3) This rule does not apply to the extent that SYSC 10.1.21R applies. [Note: article 18(2) 23(2) and (3) of MiFID and Article 22(4) of MiFID implementing Directive] 10.1.8A R The obligation in SYSC 10.1.8R(2)(a) does not apply to a firm when carrying on insurance mediation activity.
10.1.9 G Firms should aim to identify and manage the conflicts of interest arising in
relation to their various business lines and their group's activities under a

FCA 2017/xx comprehensive conflicts of interest policy. In particular, the disclosure of conflicts of interest by a firm should not exempt it from the obligation to maintain and operate the effective organisational and administrative arrangements under SYSC 10.1.7R. While disclosure of specific conflicts of interest is required by SYSC 10.1.8R, an over-reliance on disclosure without adequate consideration as to how conflicts may appropriately be managed is not permitted. [Note: recital 27 of MiFID implementing Directive] 10.1.9A R A firm must treat disclosure of conflicts pursuant to SYSC 10.1.8R as a measure of last resort to be used only where the effective organisational and administrative arrangements established by the firm to prevent or manage its conflicts of interest in accordance with SYSC 10.1.7R are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented. Conflicts policy
10.1.10 R (1) A common platform firm and a management company must
establish, implement and maintain an effective conflicts of interest policy conflicts of interest policy that is set out in writing and is appropriate to the size and organisation of the firm and the nature, scale and complexity of its business. (2) Where the common platform firm or the management company is a member of a group, the policy must also take into account any circumstances, of which the firm is or should be aware, which may give rise to a conflict of interest arising as a result of the structure and business activities of other members of the group. [Note: article 22(1) of MiFID implementing Directive and article 18(1) of the UCITS implementing Directive] Contents of policy
10.1.11 R (1) The conflicts of interest policy must include the following content:
(a) it must identify in accordance with SYSC 10.1.3R and SYSC 10.1.4R, by reference to the specific services and activities carried out by or on behalf of the common platform firm or management company, the circumstances which constitute or may give rise to a conflict of interest entailing a material risk of damage to the interests of one or more clients; and (b) it must specify procedures to be followed and measures to be adopted in order to manage such conflicts. (2) The procedures and measures provided for in paragraph (1)(b) must:
(a) be designed to ensure that relevant persons engaged in different business activities involving a conflict of interest of

FCA 2017/xx the kind specified in paragraph (1)(a) carry on those activities at a level of independence appropriate to the size and activities of the common platform firm or the management company and of the group to which either of them respectively belongs, and to the materiality of the risk of damage to the interests of clients; and (b) include such of the following as are necessary and appropriate for the common platform firm or the management company to ensure the requisite degree of independence:
(i) effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of a conflict of interest where the exchange of that information may harm the interests of one or more clients; (ii) the separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services to, clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the firm; (iii) the removal of any direct link between the remuneration of relevant persons principally engaged in one activity and the remuneration of, or revenues generated by, different relevant persons principally engaged in another activity, where a conflict of interest may arise in relation to those activities; (iv) measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out services or activities; and (v) measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate services or activities where such involvement may impair the proper management of conflicts of interest. (3) If the adoption or the practice of one or more of those measures and procedures does not ensure the requisite level of independence, a common platform firm and a management company must adopt such alternative or additional measures and procedures as are necessary and appropriate for the purposes of paragraph (1)(b). [Note: article 22(2) and (3) of MiFID implementing Directive and articles 18(2), 19(1) and 19(2) of the UCITS implementing Directive] 10.1.11A G Other firms (except common platform firms and UCITS management companies) should take account of the rules relating to conflicts of interest

FCA 2017/xx policies (see SYSC 10.1.10R and SYSC 10.1.11R) as if they were guidance (and as if "should" appeared in those rules instead of "must", as explained in SYSC 1 Annex 13.3.3G), except when they produce or arrange the production of investment research in accordance with COBS 12.2, or produce or disseminate non-independent research in accordance with COBS 12.3 (see SYSC 10.1.16R) in accordance with SYSC 1 Annex 1.3.2BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R. 10.1.11B G A firm (other than a common platform firm) should assess and periodically review, on an at least an annual basis, the conflicts of interest policy established in accordance with SYSC 10.1.10R and SYSC 10.1.11R and should take all appropriate measures to address any deficiencies (such as over reliance on disclosure of conflicts of interest).
10.1.12 G In drawing up a conflicts of interest policy which identifies circumstances
which constitute or may give rise to a conflict of interest, a firm should pay special attention to the activities of investment research and advice, proprietary trading, portfolio management and corporate finance business, including underwriting or selling in an offering of securities and advising on mergers and acquisitions. In particular, such special attention is appropriate where the firm or a person directly or indirectly linked by control to the firm performs a combination of two or more of those activities. [Note: recital 26 of MiFID implementing Directive 47 to the MiFID Org Regulation] Corporate finance
10.1.13 G This section is relevant to the management of a securities offering by any
firm. [deleted]
10.1.14 G A firm will wish to note that when carrying on a mandate to manage an
offering of securities, the firm’s duty for that business is to its corporate finance client (in many cases, the corporate issuer or seller of the relevant securities), but that its responsibilities to provide services to its investment clients are unchanged. [deleted]
10.1.15 G Measures that a firm might wish to consider in drawing up its conflicts of
interest policy in relation to the management of an offering of securities include: [deleted] (1) at an early stage agreeing with its corporate finance client relevant aspects of the offering process such as the process the firm proposes to follow in order to determine what recommendations it will make about allocations for the offering; how the target investor group will be identified; how recommendations on allocation and pricing will be prepared; and whether the firm might place securities with its investment clients or with its own proprietary book, or with an associate, and how conflicts arising might be managed; and

FCA 2017/xx
(2) agreeing allocation and pricing objectives with the corporate finance client; inviting the corporate finance client to participate actively in the allocation process; making the initial recommendation for allocation to retail clients of the firm as a single block and not on a named basis; having internal arrangements under which senior personnel responsible for providing services to retail clients make the initial allocation recommendations for allocation to retail clients of the firm; and disclosing to the issuer details of the allocations actually made. [Note: The provisions in SYSC 10.1 also implement articles 74(1) and 88 of the CRD and as applied under the discretion in the third paragraph of article 95(2) of the EU CRR, BCD Article 22 and BCD Annex V paragraph 1] … 18 Whistleblowing
18.1 Application and Purpose
…
18.1.1A R This chapter applies to:
(1) a firm;
(2) in relation to the guidance in SYSC 18.3.9G to , every firm; (3) in relation to SYSC 18.6.1R to SYSC 18.6.3G (Whistleblowing obligations under MiFID):
(a) a UK MiFID investment firm, except a collective portfolio management firm; and (b) a third country investment firm; and (4) in relation to SYSC 18.6.4G to SYSC 18.6.5G (Whistleblowing obligations under other EU legislation), a person within the scope of the identified EU sectoral and cross-sectoral legislation. 18.1.1AA G Firms are reminded that for the purpose of SYSC 18 (except for SYSC 18.3.9G) “firm” has the specific meaning set out in paragraph (8) of that definition in the Glossary, namely:
“(8) (in SYSC 18, with the exception of the guidance in SYSC 18.3.9G):
“(a) a relevant authorised person except a small deposit taker; and (b) a firm as referred to Chapter 1.1 of the PRA Rulebook: Solvency II Firms: Whistleblowing.” …

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Purpose
18.1.2 G (1) The purposes of the chapter are to:
…
(c) …
(ca) implement the whistleblowing obligation under article 73(2) of MiFID, which requires MiFID investment firms (except collective portfolio management firms) to have in place appropriate procedures for their employees to report potential or actual infringements of MiFID and MiFIR (SYSC 18.6); (cb) outline other EU-derived whistleblowing obligations similar to those in article 73(2) of MiFID, some of which may also be applicable to MiFID investment firms (SYSC 18.6); … Insert the following new section after SYSC 18.5 (Settlement agreements with workers). All the text is new and not underlined.
18.6 Whistleblowing obligations under MiFID and other EU legislation
Whistleblowing obligations under MiFID
18.6.1 R (1) A UK MiFID investment firm (except a collective portfolio
management investment firm) must have appropriate procedures in place for its employees to report a potential or actual breach of:
(a) any rule implementing MiFID; or
(b) a requirement imposed by MiFIR or any EU regulation adopted under MiFID or MiFIR. (2) The procedures in (1) must enable employees to report internally through a specific, independent and autonomous channel. (3) The channel referred to in (2) may be provided through arrangements made by social partners, subject to the Public Interest Disclosure Act 1998 and the Employment Rights Act 1996 to the extent that they apply. [Note: article 73(2) of MiFID]
18.6.2 R SYSC 18.6.1R applies to a third country investment firm as if it were a UK
MiFID investment firm (unless it is a collective portfolio management

FCA 2017/xx investment firm) when the following conditions are met:
(1) it carries on MiFID or equivalent third country business; and (2) it carries on the business in (1) from an establishment in the United Kingdom.
18.6.3 G When considering what procedures may be appropriate for the purposes of
SYSC 18.6.1R(1), a UK MIFID investment firm or a third country investment firm may wish to consider the arrangements in SYSC 18.3.1R(2). Whistleblowing obligations under other EU legislation
18.6.4 G In addition to obligations under MiFID, similar whistleblowing obligations
apply to miscellaneous persons subject to regulation by the FCA under the following non-exhaustive list of EU legislation:
(1) article 32(3) of the Market Abuse Regulation, as implemented in
section 131AA of the Act;
(2) article 71(3) of the CRD (see IFPRU 2.4.1R in respect of IFPRU investment firms); (3) article 99d(5) of the UCITS Directive (see SYSC 4.1.1ER in respect of UK UCITS management companies, and COLL 6.6B.30R in respect of depositaries); and (4) article 24(3) of the securities financing transactions regulation.
18.6.5 G Depending on the nature of its business, in addition to SYSC 18.6.1R, a
MiFID investment firm may, for example, be subject to one or more of the requirements in SYSC 18.6.4G. Amend the following as shown. 19A IFPRU Remuneration Code 19A.3 Remuneration principles for IFPRU investment firms … Remuneration Principle 5: Control functions … 19A.3.17 G …

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(3) The appropriate regulator FCA would generally expect the ratio of the potential variable component of remuneration to the fixed component of remuneration to be significantly lower for employees in risk management and compliance functions than for employees in other business areas whose potential bonus is a significant proportion of their remuneration. Firms should nevertheless ensure that the total remuneration package offered to those employees is sufficient to attract and retain staff with the skills, knowledge and expertise to discharge those functions. The requirement that the method of determining the remuneration of relevant persons involved in the compliance function must not compromise their objectivity or be likely to do so also applies (see SYSC 6.1.4R(4) article 22(3) of the MiFID Org Regulation). … 19C BIPRU Remuneration Code 19C.3 Remuneration principles … Remuneration Principle 5: Control functions … 19C.3.17 G … (3) The FCA would generally expect the ratio of the potential variable component of remuneration to the fixed component of remuneration to be significantly lower for employees in risk management and compliance functions than for employees in other business areas whose potential bonus is a significant proportion of their remuneration. Firms should nevertheless ensure that the total remuneration package offered to those employees is sufficient to attract and retain staff with the skills, knowledge and expertise to discharge those functions. The requirement that the method of determining the remuneration of relevant persons involved in the compliance function must not compromise their objectivity or be likely to do so also applies (see SYSC 6.1.4R(4) article 22(3) of the MiFID Org Regulation). … 19D Dual-regulated firms Remuneration Code 19D.3 Remuneration principles … Remuneration Principle 5: Control functions …

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19D.3.18 G …
(3) The FCA would generally expect the ratio of the potential variable component of remuneration to the fixed component of remuneration to be significantly lower for employees in risk management and compliance functions than for employees in other business areas whose potential bonus is a significant proportion of their remuneration. Firms should nevertheless ensure that the total remuneration package offered to those employees is sufficient to attract and retain staff with the skills, knowledge and expertise to discharge those functions. The requirement that the method of determining the remuneration of relevant persons involved in the compliance function must not compromise their objectivity or be likely to do so also applies (see SYSC 6.1.4R(4) article 22(3) of the MiFID Org Regulation). … Insert the following new chapter after SYSC 19E (UCITS Remuneration Code). All the text is new and not underlined. 19F Remuneration and performance management of sales staff 19F.1 MiFID remuneration incentives Application 19F.1.1 R (1) SYSC 19F.1 applies to:
(a) a common platform firm, unless it is a collective portfolio management investment firm; (b) a MiFID optional exemption firm; (c) a third country firm; and (d) a UK branch of an EEA MiFID investment firm, unless it is a UCITS investment firm or an AIFM investment firm. (2) In relation to a firm that falls under (1)(c), SYSC 19F.1 applies only in relation to activities carried on from an establishment in the United Kingdom. Purpose 19F.1.3 G This chapter contains rules implementing article 24(10) of MiFID and on remuneration policies and practices. MiFID requirement on remuneration incentives

FCA 2017/xx
19F.1.4 R A firm which provides investment services to clients must ensure that it does not remunerate or assess the performance of its staff in a way that conflicts with its duty to act in the best interests of its clients. In particular, a firm must not make any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to its staff to recommend a particular financial instrument to a retail client when the firm could offer a different financial instrument which would better meet that client’s needs. [Note: article 24(10) of MiFID] Remuneration policies and practices 19F.1.5 R (1) A dormant account fund operator in respect of its investment services and ancillary services, a MiFID optional exemption firm in respect of its investment services and ancillary services and a third country firm in respect of its MiFID or equivalent third country business must:
(a) define and implement remuneration policies and practices under appropriate internal procedures taking into account the interests of all the clients of the firm, with a view to ensuring that clients are treated fairly and their interests are not impaired by the remuneration practices adopted by the firm in the short, medium or long term. Remuneration policies and practices must be designed in such a way so as not to create a conflict of interest or incentive that may lead relevant persons to favour their own interests or the firm’s interests to the potential detriment of any client; (b) ensure that their remuneration policies and practices apply to all relevant persons with an impact, directly or indirectly, on investment services and ancillary services provided by the firm or on its corporate behaviour, regardless of the type of clients, to the extent that the remuneration of such persons and similar incentives may create a conflict of interest that encourages them to act against the interests of any of the firm’s clients; and (c) ensure that its management body approves, after taking advice from the compliance function, the firm’s remuneration policy. The senior management of the firm must be responsible for the day-to-day implementation of the remuneration policy and the monitoring of compliance risks related to the policy. (2) (a) Remuneration and similar incentives must not be solely or predominantly based on quantitative commercial criteria, and must take fully into account appropriate qualitative criteria reflecting compliance with the applicable regulations, the fair treatment of clients and the quality of services provided to clients. (b) A balance between fixed and variable components of remuneration must be maintained at all times, so that the

FCA 2017/xx remuneration structure does not favour the interests of the firm or its relevant persons against the interests of any client. 19F.1.6 G A firm should also be aware of:
(1) in the case of a common platform firm (but excluding a collective portfolio management investment firm), the requirements on remuneration in article 27 of the MiFID Org Regulation applying to it; (2) the requirements in relation to remuneration policies (SYSC 4.3A.1AR) and conflicts of interest (SYSC 10.1.7R); (3) the Finalised Guidance 13/01 entitled ‘Risks to customers from financial incentives’ published in January 2013; and (4) the Finalised Guidance 15/10 entitled ‘Risks to customers from performance management at firms’ published in July 2015. Amend the following as shown. Sch 1 Record keeping requirements 1.1G The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements. It is not a complete statement of those requirements and should not be relied on as if it were. 1.2G Handbook reference Subject of record Contents of record When record must be made Retention period SYSC 9.1.1R … … … … SYSC 9.1.1AR Business and internal organisation Details of the firm's orderly records of services and transactions undertaken Within a reasonable time Adequate …

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Annex D
Amendments to the Statements of Principle and Code of Practice for Approved Persons (APER) In this Annex, underlining indicates new text and striking through indicates deleted text. 4 Code of Practice for Approved Persons: specific …
4.7 Statement of Principle 7
…
4.7.10 G In the case of an approved person performing an accountable higher
management function responsible for compliance under SYSC 3.2.8R, SYSC 6.1.4R or SYSC 6.1.4AR in respect of the following provisions, failing to take reasonable steps to ensure that appropriate compliance systems and procedures are in place falls within APER 4.7.2G:
(1) SYSC 3.2.8R; or
(2) SYSC 6.1.4R; or
(3) article 22(3) of the MiFID Org Regulation (as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2-AR, SYSC 1
Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1
3.3R); or
(4) SYSC 6.1.4AR.
…

FCA 2017/xx
Annex E
Amendments to the Fit and Proper test for Approved Persons and specified significantharm functions (FIT) In this Annex, underlining indicates new text and striking through indicates deleted text. 1 General …
1.2 Introduction
…
1.2.1C G The key general rules relating to the criteria listed in FIT 1.2.1BG include:
…
(2) for employees of firms generally, SYSC 5.1.1R (the competent employees rule ) ; and … …

FCA 2017/xx
Annex F
Amendments to the General Provisions (GEN) In this Annex underlining indicates new text. 2 Interpreting the Handbook …
2.2 Interpreting the Handbook
…
EU Regulations and third country firms
2.2.22A R (1) Unless exempted in (2) and subject to (3), MiFIR, and any EU regulation adopted as at 3 January 2018 under MiFIR or MiFID, apply to a third country investment firm as if it were a UK MiFID investment firm when the following conditions are met:
(a) when it carries on MiFID or equivalent third country business; and (b) it carries on the business in (a) from an establishment in the United Kingdom. (2) Paragraph (1) does not apply:
(a) to the extent MiFIR or an EU regulation adopted under MiFIR or MiFID imposes a specific requirement in relation to a third country investment firm; and (b) to EU regulations adopted under articles 7, 34 and 35 of MiFID. (3) Paragraph (1) is modified by the application provisions in individual Handbook chapters for particular purposes. 2.2.22B G (1) The purpose of GEN 2.2.22AR is to ensure consistency with the principle referred to in recital 109 to MiFID that a third country investment firm should not be treated in a more favourable way than an EEA firm. A third country investment firm does not, however, benefit from passporting rights in the manner envisaged for EEA firms and its authorisation requires consideration of other issues, including the nature and extent of regulation provided by its Home State regulator. (2) GEN 2.2.22AR may be overridden where the application provisions at the beginning of individual Handbook chapters qualify its effect. …

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Annex G
Amendments to the Fees manual (FEES)
In this Annex striking through indicates deleted text and underlining indicates new text, unless otherwise indicated. 1 Fees Manual
1.1 Application and Purpose
…
Application
1.1.2 R This manual applies in the following way:
(1) …
(2) FEES 1, 2 and 4 apply to:
…
(n) every AIFM notifying the FCA under regulation 57, 58 and 59 of the AIFMD UK regulation and every AIFM which has made such a notification; and (o) each of the following that makes transactions reports directly to the FCA under SUP 17 17A (Transaction reporting):
(i) a firm;
(ii) a third party acting on a firm's behalf; (iii) an approved reporting mechanism; (iv) an operator of a regulated market; and (v) an operator of an MTF or OTF; and (p) a data reporting services provider. … 2 General Provisions
2.1 Introduction
…
Purpose

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…
2.1.5 G (1) The following enable the FCA to charge fees to cover its costs and
expenses in carrying out its functions:
…
(d) article 25(a) of the MCD Order; and
(e) regulation 21 of the Small and Medium Sized Businesses (Credit Information) Regulations; (f) regulation 18 of the Small and Medium Sized Business (Finance Platforms) Regulations; (g) regulation 21 of the DRS Regulations; and (h) regulation 52 of the MiFI Regulations. … … 2.1.5C G (1) The FCA also has a fee-raising power as a result of:
(a) regulation 21 of the Small and Medium Sized Businesses (Credit Information) Regulations; and (b) regulation 18 of the Small and Medium Sized Business (Finance Platforms) Regulations ; (c) regulation 21 of the DRS Regulations; and (d) regulation 52 of the MiFI Regulations. (2) The FCA’s functions under these regulations are treated as functions conferred on the FCA under the Act for the purposes of its fee-raising power in paragraph 23 of Schedule 1ZA to the Act. …
3.1 Introduction
…
3.1.2 G This chapter does not apply to:
(1) an EEA firm that wishes to exercise an EEA right; or unless it is:
(a) an incoming data reporting services provider connecting to the market data processing system; or

FCA 2017/xx
(b) an EEA firm connecting to the market data processing system; or … …
3.2 Obligation to pay fees
…
3.2.7 R Table of application, notification, vetting and other fees payable to the FCA
Part 1: Application, notification and vetting fees
(1) Fee payer (2) Fee payable (£) Due date … (r) Providers of reporting or trade matching systems applying for recognition under MiFID as an Approved Reporting Mechanism. [deleted] 100,000 Having received its application, within 30 days after the FCA has notified the applicant that it is to commence testing of the applicant’s systems. … (t) A firm, a third party acting on a firm’s behalf, an operator of a regulated market or, an operator of an MTF applying to the FCA to report transaction reports directly to the FCA. [deleted] 100,000 Having received its application, within 30 days after the FCA has notified the applicant that it is to commence testing of the applicant’s systems. … (zx) (1) Unless (2) applies any person applying to connect to the market data processing system to make transaction reports directly to the FCA under MiFIR. (2) If a person has (1) Unless (2) applies, 20,000. (2) Any incoming data reporting services provider will pay 80% of the fee at (1). On or before the date the application is made.

FCA 2017/xx previously applied as stated in (zx)(1) above and has been connected then no further fee is payable for any further such applications. (zy) (1) Subject to (2) and (3) below, any person applying to connect to the market data processing system to provide markets data (other than transaction reports) under MiFID II and MiFIR. (2) If a person has previously applied as stated in (zy)(1) above and has been connected then no further fee is payable for any further such applications in relation to reporting the same data. (3) If a person has previously applied as stated in (zy)(1) above and makes a further application in relation to the provision of different data then a separate fee is payable for such application. (1) Unless (2) applies, 10,000. (2) Any incoming data reporting services provider authorised by another EEA State will pay 80% of the fee at (1). On or before the date the application is made. … … 4 Periodic fees
4.1 Introduction
…
4.1.1A R A reference to firm in this chapter includes a reference to:

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(1) a fee-paying payment service provider; (2) a CBTL firm; (3) a fee paying fee-paying electronic money issuer, and ; (4) a recognised investment exchange; and (5) a data reporting services provider. … Background …
4.1.4 G …
(3) The periodic fees for fee-paying payment service providers, feepaying electronic money issuers, CBTL firms, data reporting service providers and issuers of regulated covered bonds are set out in FEES 4 Annex 11R. This annex sets out the activity groups, tariff base, valuation dates and, where applicable, the flat fees due for these firms. …
4.2 Obligation to pay periodic fees
…
4.2.7K R …
Table A: calculating tariff data for second and subsequent years of authorisation
when full trading figures are not available Fee-block Tariff base Calculation where trading data are not available … B. Market operators and , MTF operators and OTF operators Flat fee Not applicable. … …
4.2.11 R Table of periodic fees payable to the FCA
1 Fee payer 2 Fee payable 3 Due date 4 Events occurring during the period

FCA 2017/xx leading to modified periodic fee Any firm (except an AIFM qualifier, ICVC or a UCITS qualifier) (1) Unless (2) applies, as specified in FEES 4.3.1R in relation to FEES 4 Annex 2AR and FEES 4
Annex 11R.
(2) Where a firm is paying a ringfencing implementation fee, as specified in FEES 4 Annex 2BR. (1) (1) Unless (2) or (3) apply, on or before the relevant dates specified in FEES 4.3.6R. (2) … (3) Where the permission is for operating a multilateral trading facility or operating an organised trading facility, the date specified in FEES 4 Annex 10 10R (Periodic fees for MTF and OTF operators). Firm receives permission, or becomes authorised or registered under the Payment Services Regulations, article 8 of the MCD Order, the DRS Regulations or the Electronic Money Regulations; or firm extends permission or its payment service activities … … … … Each of the following that makes transaction reports directly to the FCA under SUP 17 17A (Transaction reporting):
…
(4) an operator of a regulated market; and (5) an operator of an MTF; and (6) an operator of an OTF. … … … …

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4.3 Periodic fee payable by firms (other than AIFM qualifiers, ICVCs and
UCITS qualifiers)
…
Calculation of periodic fee (excluding except in relation to the Society of Lloyd’s, fee-paying payment service providers and , fee-paying electronic money issuers and data reporting services providers )
4.3.3 R The periodic fee referred to in FEES 4.3.1R is (except in relation to the
Society, fee-paying payment service providers and , fee-paying electronic money issuers and data reporting services providers) calculated as follows:
…
Calculation of periodic fee for fee-paying payment service providers and feepaying electronic money issuers 4.3.3A R The periodic fee referred to in FEES 4.3.1R in relation to fee-paying payment service providers, CBTL firms, data reporting service providers and fee-paying electronic money issuers is calculated in accordance with FEES 4 Annex 11R. … Time of payment
4.3.6 R …
[Note: If the firm is a PRA-authorised person that meets the condition at FEES 4.3.6R(1)(D)(b), the firm will also pay its PRA periodic fees in two tranches as specified in the Fees Part of the PRA Rulebook Rulebook. The FCA, acting as the PRA’s collection agent, will collect these fees.] … (3) If a firm has applied to cancel its Part 4A permission in the way set out in SUP 6.4.5D (Cancellation of permission), or its status as a payment institution under regulation 10 of the Payment Services Regulations (Cancellation of authorisation) or as regulation 10 is applied by regulation 14 of the Payment Services Regulations (Supplementary provisions), or its status as an electronic money issuer under regulation 10 of the Electronic Money Regulations (Cancellation of authorisation) or as regulation 10 is applied by regulation 15 of the Electronic Money Regulations (Supplementary provisions), or its registration as a CBTL firm under article 13(c) of the MCD Order or its authorisation as a data reporting service provider under regulation 11 of the DRS Regulations, then (1) and (2) do not apply but it must pay the total amount due when the application is made.

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…
(4A) If the FCA has cancelled a firm's authorisation or registration under regulation 10 of the Payment Services Regulations or regulation 10 of the Electronic Money Regulations or its registration under regulation 10 as applied by regulation 14 of the Payment Services Regulations or its registration under regulation 10 as applied by regulation 15 of the Electronic Money Regulations, or its registration under article 13 (except under article 13(c)) of the MCD Order, or its authorisation as a data reporting service provider under regulation 11 or 12 of the DRS Regulations, then (1) and (2) do not apply but the firm must pay the total amount due immediately before the cancellation becomes effective. … (6) Paragraphs (1) and (2) do not apply to any periodic fee in relation to a firm’s permission for operating a multilateral trading facility or operating an organised trading facility and such a fee is not taken into account for the purposes of the split in (1). Instead any fee for this permission is payable on the date specified in FEES 4 Annex 10R (Periodic fees for MTF and OTF operators). …
4.3.12 R For an incoming EEA firm (excluding MTF and OTF operators), or an
incoming Treaty firm, the calculation required by FEES 4.3.3R is modified as follows:
…
…
Firms Applying to Cancel or Vary Permission Before Start of Period
4.3.13 R (1) If:
(a) a firm:
(i) makes an application to vary its permission (by reducing its scope), or cancel it, in the way set out in SUP 6.3.15D(3) (Variation of permission) and SUP 6.4.5D (Cancellation of permission), ; or (ii) applies to vary (by reducing its scope) or cancel its authorisation or registration (regulation 8 and 10(1) of the Payment Services Regulations including as applied by regulation 14 of the Payment Services Regulations) ; or (iii) applies to cancel its authorisation or registration

FCA 2017/xx
(regulation 10 and 12 of the Electronic Money Regulations including as applied by regulation 15 of the Electronic Money Regulations) ; or (iv) applies for revocation of its registration under article 13(c) of the MCD Order , ; or (v) applies to vary (by reducing its scope) or cancel its authorisation as a data reporting services provider under regulation 11 and 12 of the DRS Regulations; or (aa) an issuer makes an application for de-listing; or (ab) a sponsor notifies the FCA of its intention to be removed from the list of approved sponsors; and (b) the firm, issuer or sponsor makes the application or notification referred to in (a), (aa) or (ab) respectively, before the start of the fee year to which the fee relates; FEES 4.2.1R applies to the firm as if the relevant variation or cancellation of the firm's permission or authorisation or registration under the Payment Services Regulations, MCD Order, DRS Regulations or the Electronic Money Regulations, de-listing or removal from the list of approved sponsors, took effect immediately before the start of the fee year to which the fee relates. (2) But (1) does not apply if, due to the continuing nature of the business, the variation, cancellation, de-listing or removal is not to take effect on or before 30 June of the fee year to which the fee relates.
4.3.14 G Where The due dates for payment of periodic fees are modified by FEES
4.3.6R(3), FEES 4.3.6R(4) and FEES 4.3.6R(4A) respectively where:
(1) a firm has applied to cancel its:
(a) Part 4A permission, ; or
(b) its authorisation or registration under the Payment Services Regulations or the Electronic Money Regulations, ; or (c) its registration as a CBTL firm under article 13(c) of the MCD Order, ; or (d) authorisation under regulation 11 of the DRS Regulations; or (2) the FCA has exercised its:
(a) own-initiative powers to cancel a firm's Part 4A permission ; or

FCA 2017/xx
(b) the FCA has exercised its powers under regulation 10 (Cancellation of authorisation), including as applied by regulation 14 (Supplementary provisions) of the Payment Services Regulations to cancel a firm's authorisation or registration under the Payment Services Regulations ; or (c) the FCA has exercised its powers under regulation 10 (Cancellation of authorisation), including as applied by regulation 15 (Supplementary provisions) of the Electronic Money Regulations, or regulation 11 of the DRS Regulations; or (d) the FCA has exercised its powers under article 13 (Revocation of registration), excluding article 13(c), of the MCD Order , the due dates for payment of periodic fees are modified by FEES 4.3.6R(3), FEES 4.3.6R(4) and FEES 4.3.6R(4A) respectively. …
4.4 Information on which fees are calculated
4.4.1 R A firm (other than the Society and or an MTF or OTF operator in relation to
its MTF or OTF business) must notify the FCA (in its own capacity and, if applicable, in its capacity as collection agent for the PRA) the value (as at the valuation date specified in Part 5 of FEES 4 Annex 1AR) of each element of business on which the periodic fee payable by the firm is to be calculated. … 4 Annex 1AR FCA Activity groups, tariff bases and valuation dates
Part 1
This table shows how the FCA links the regulated activities for which a firm has permission to activity groups (fee-blocks). A firm can use the table to identify which fee-blocks it falls into based on its permission. Activity group Fee payer falls in the activity group if :
… …
A.13 Advisors, arrangers, dealers or brokers (1) it is an authorised professional firm and ALL the regulated activities in its permission are limited to nonmainstream regulated activities (a firm falling within this category is a class (1) firm); OR (2) its permission:

FCA 2017/xx
(a) includes one or more of the following:
…
(ii) …
(iii) in relation to a structured deposit:
dealing in investments as agent; or arranging (bringing about deals) in investments; or making arrangements with a view to transactions in investments; or advising on investments (except P2P agreements); or advising on investments (except pension transfers and pension opt-outs); … … B. Market operators (1) firms that were prescribed as an operator of a prescribed market under the Financial Services and Markets Act (Prescribed Markets and Qualifying Investments) Order 2001 (SI 2001/996); and (2) firms that are prescribed as a market operator, as defined in article 4(1)(13) 4(1)(18) of MiFID. … B. MTF and OTF operators its permission includes operating a multilateral trading facility or operating an organised trading facility. …
Part 3
This table indicates the tariff base for each fee-block set out in Part 1. The tariff base in this Part is the means by which the FCA measures the amount of business conducted by a firm for the purposes of calculating the annual periodic fees payable to the FCA by that firm. Activity group Tariff base … … A.10 NUMBER OF TRADERS Any employee or agent, who:
ordinarily acts within the United Kingdom on behalf of an authorised person liable to pay fees to the FCA in its feeblock A.10 (firms dealing as principal); and who,

FCA 2017/xx as part of their duties in relation to those activities of the authorised person, commits the firm in market dealings or in transactions in securities or in other specified investments in the course of regulated activities. But not any employees or agents who work solely in the firm’s MTF or OTF operation. … … B. MTF and OTF operators SUPERVISORY CATEGORY The general supervisory category to which the firm MTF or OTF operator was assigned as at the start of the relevant fee year. …
Part 5
This table indicates the valuation date for each fee-block. A firm can calculate its tariff data in respect of fees payable to the FCA by applying the tariff bases set out in Part 3 with reference to the valuation dates shown in this table. Activity group Valuation date IN THIS TABLE, REFERENCES TO SPECIFIC DATES OR MONTHS ARE REFERENCES TO THE LATEST ONE OCCURRING BEFORE THE START OF THE PERIOD TO WHICH THE FEE APPLIES, UNLESS OTHERWISE SPECIFIED - E.G. FOR 2013/14 FEES (1 APRIL 2013 TO 31 MARCH 2014), A REFERENCE TO DECEMBER MEANS DECEMBER 2012. Where a firm’s tariff data is in a currency other than sterling, it should be converted into sterling at the exchange rate prevailing on the relevant valuation date. … B. MTF and OTF operators The start of the relevant fee year. … 4 Annex 2AR FCA Fee rates and EEA/Treaty firm modifications for the period from 1 April 2016 to March 2017 1 April 2017 to 31 March 2018
Part 1
This table shows the tariff rates applicable to each of the fee blocks set out in Part 1 of FEES 4 Annex 1AR.

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…
Activity group Fee payable
…
B. MTF and OTF operators
As set out in FEES 4 Annex
10 10R (Periodic fees for
MTF and OTF operators).
… … …
Part 3
This table shows the modifications to fee tariffs that apply in respect of the FCA to incoming EEA firms and incoming Treaty firms which have established branches in the UK. Activity group Percentage deducted from the tariff payable under Part 1 applicable to the firm … B. MTF MTF and OTF operators Not applicable … 4 Annex 3AR Fees relating to the direct reporting of transactions to the FCA under SUP 17 17A for the period 1 April 2016 to 31 March 2017 1 April 2017 to 31 March 2018 This table shows the fees payable by a firm, a third party acting on behalf of a firm, an approved reporting mechanism, an operator of a regulated market or, an operator of an MTF or an operator of an OTF that makes transaction reports directly to the FCA under SUP 17 (Transaction reporting). … … 4 Annex 10R Periodic fees for MTF and OTF operators payable in relation to the period 1 April 2016 to 31 March 2017 1 April 2017 to 31 March 2018 General supervisory category of MTF or OTF operator (see Note below) Fee payable (£) Due date (i) 1 August 2016 2017; or (ii) 30 days from the date of the invoice in the case of a firm which receives permission to be operating

FCA 2017/xx a multilateral trading facility or to be operating an organised trading facility or whose permission is extended to include this either activity in the course of the relevant financial year. MTF or OTF operator has a named individual fixed portfolio supervisor … All other MTF or OTF operators (i.e. those supervised by a team of flexible portfolio supervisors) … … Note: subject to FEES 4.3.13R, this table applies to all MTF or OTF operators with permission to operate an MTF or OTF as at 1 April of the applicable fee year, irrespective of whether, and if so when, their permission to operate an MTF or OTF was subsequently cancelled during that fee year. 4 Annex 11R Periodic fees in respect of payment services, electronic money and issuance, regulated covered bonds, CBTL business and data reporting services in relation to the period 1 April 2017 to 31 March 2018 This Annex sets out the periodic fees in respect of payment services carried on by fee-paying payment service providers under the Payment Services Regulations and electronic money issuance by fee-paying electronic money issuers under the Electronic Money Regulations and issuance of regulated covered bonds by issuers and CBTL business carried on by CBTL firms under the MCD Order and, firms registered under the Money Laundering Regulations in relation to the period 1 April 2017 to 31 March 2018 and data reporting services providers under the DRS Regulations. …
Part 2C – Activity group relevant to data reporting services providers
Activity Group Fee payer falls into this group if:
G.25 DRSP it is a data reporting services provider
Part 3

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This table indicates the tariff base for each fee-block. The tariff base is the means by which the FCA measures the amount of business conducted by fee-paying payment service providers, fee-paying electronic money issuers, CBTL firms, MLR firms , data reporting services providers and issuers of regulated covered bonds. Activity Group Tariff base … G.25 Not applicable …
Part 5 – Tariff rates
Activity group Fees payable in relation to 2017/18 … G.25 Flat fee (£) for first data reporting service plus 50% flat fee for each additional data reporting service for which the data reporting services provider has authorisation. [TBC] …

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Annex H
Amendments to the Prudential sourcebook for Investment Firms (IFPRU) In this Annex, underlining indicates new text and striking through indicates deleted text. 1 Application
1.1 Application and Purpose
…
Types of IFPRU investment firm: IFPRU 125K firm
1.1.9 R An IFPRU 125K firm means an IFPRU investment firm that satisfies the
following conditions:
…
(5) it does not operate either a multilateral trading facility or an organised trading facility, or both. [Note: article 29(1) of CRD] Types of IFPRU investment firm: IFPRU 50K firm
1.1.10 R An IFPRU 50K firm is a IFPRU investment firm that satisfies the following
conditions:
…
(4) it does not operate either a multilateral trading facility or an organised trading facility, or both. [Note: article 29(3) of CRD] Types of IFPRU investment firm: IFPRU 730K firm
1.1.11 R …
(2) An IFPRU investment firm that operates either a multilateral trading facility or an organised trading facility or both is an IFPRU 730K firm. [Note: article 28(2) of CRD] … Interpretation of the definition of types of firm and undertaking
1.1.13 G A firm whose head office is not in an EEA State is an investment firm if it
would have been subject to the requirements imposed by MiFID (but it is

FCA 2017/xx not a bank, building society, credit institution, local firm, exempt CAD firm and BIPRU firm) if:
…
…
2 Supervisory processes and governance
…
2.3 Supervisory review and evaluation process: internal capital adequacy
standards
…
A securities firm
…
2.3.65 G Counterparty risk requirements only partially capture the risk of settlement
failure, as the quantification of risk is only based on mark-to-market values and does not take account of the volatility of the securities over the settlement period. A securities firm's assessment of its exposure to counterparty risk should take into account:
…
(2) the types of execution venues which it uses - for example, the London Stock Exchange or a retail service provider (RSP) have more depth than multilateral trading facilities and organised trading facilities; and … …

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Annex I
Amendments to the Interim Prudential sourcebook for Investment Businesses (IPRU(INV)) In this Annex, underlining indicates new text and striking through indicates deleted text. 3 Financial resources for Securities and Futures Firms which are not MiFID Investment Firms or which are Exempt BIPRU Commodities Firms or Exempt IFPRU Commodities Firms … 3-60 FIRMS TO WHICH RULES 3-61 TO 3-182 APPLY Broad scope firms 3-60(1) R Rules 3-61 to 3-182 apply to a broad scope firm except that rules 3-80 to 3- 178 do not apply to a venture capital firm or in respect of bidding in emissions auctions carried on by a firm that is exempt from MiFID under
article 2(1)(i) (j).
…
Advisers and locals/traded options market makers 3-60(4) R Rules 3-61 to 3-182 do not apply to an adviser or local/traded options market maker which must instead comply with the following capital requirements at all times:
(a) tangible net worth must be positive; and (b) in the case of an adviser, net current assets must be positive; and . (c) in the case of a local traded options market maker, the firm must be able to meet its liabilities as they fall due. … Absolute minimum requirement – General rule 3-72 R A firm’s absolute minimum requirement is:
…
(eb) for a firm that is exempt from MiFID under article 2(1)(i) (j) and whose permitted activities include bidding in emissions auctions:
£50,000;
…

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3-173A DERIVATIVE TRANSACTIONS
…
Exposures to locals local firms
3-
173A(5)
R A firm must calculate a 100% CRR for amounts of initial and variation margin not met with acceptable collateral or a positive equity balance owed to a firm by a local firm in respect of transactions in derivatives listed on an exchange or approved exchange from the date of any shortfall. However, a firm may use an alternative treatment if it:
(a) participates in the profits or losses of the local firm for 25% or more when the firm may include the local firm position in its own position which will then be subject to PRR; or (b) calculates PRR for locals local firms in which case its requirement will be the sum of the following:
(i) 10% of the PRR result for each local firm; and (ii) the excess over the “net liquidating balance” of the PRR applied to the positions of each local firm; and (c) for the purposes of (b) above, “net liquidating balance” means the cash amount which would remain in a local firm account if all positions were liquidated and there were added (1) cash balances (2) the value of marketable investments, and (3) letters of credit and guarantees issued by a regulated banking institution which is not the counterparty or an associate of the counterparty in the control of the firm; and there were deducted all loans and overdrafts from, and other liabilities to the firm; and to the extent that a firm includes an exposure in the net liquidating balance calculation, it does not also need to apply the liquidity adjustment in rule 3-75 or the CRR to those exposures. …
APPENDIX 1 - GLOSSARY OF TERMS FOR IPRU(INV) 3
… broad scope firm means any firm which is not an adviser, or an arranger or a local; … 9 Financial resources requirements for an exempt CAD firm
9.2 GENERAL REQUIREMENTS
…
Initial capital and professional indemnity insurance requirements – exempt CAD

FCA 2017/xx firms that are not IMD insurance intermediaries
9.2.4 R (1) An exempt CAD firm which is not an IMD insurance intermediary must
have:
…
[Note: Article 67(3) of MiFID and article 31(1) of the CRD] … Initial capital and professional indemnity insurance requirements – exempt CAD firms that are also IMD insurance intermediaries
9.2.5 R (1) An exempt CAD firm that is also an IMD insurance intermediary must
comply with the professional indemnity insurance requirements at least equal to those set out in IPRU(INV) 9.2.4R(1)(b) (except that the minimum limits of indemnity are at least EUR 1,120,200 for a single claim and EUR 1,680,300 in aggregate) and in addition has to have:
…
[Note: Article 67(3) of MiFID and article 31(2) of the CRD] … … Initial capital and ongoing capital requirements for local firms
9.2.8 R A local firm must:
(a) have initial capital of EUR 50,000; and [Note: Article 67(2) of MiFID and article 30 of CRD] … … 13 Financial Resource Requirements for Personal Investment Firms
13.1 APPLICATION, GENERAL REQUIREMENTS AND PROFESSIONAL
INDEMNITY INSURANCE REQUIREMENTS
…
Limits of indemnity
…
13.1.11 R …

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[Note: Article 67(3) of MiFID and article 31(1) of CRD (see also IPRU(INV) 13.1A.3R)]
13.1.12 R …
[Note: Article 67(3) of MiFID and article 31(2) of CRD (see also IPRU(INV) 13.1A.4R)] …

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Annex J
Amendments to the Conduct of Business sourcebook (COBS) Amend the following as shown. Underlining indicates new text and striking though indicates deleted text. 3 Client categorisation …
3.6 Eligible counterparties
…
Per se eligible counterparties
3.6.2 R Each of the following is a per se eligible counterparty (including an entity
that is not from an EEA State that is equivalent to any of the following) unless and to the extent it is given a different categorisation under this
chapter:
…
(7) an undertaking exempted from the application of MiFID under either Article 2(1)(k) (certain own account dealers in commodities or commodity derivatives) or Article 2(1)(l) (locals) of that directive; [deleted] … (9) a central bank; and … …

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Annex K
Amendments to the Insurance: Conduct of Business sourcebook (ICOBS) In this Annex, underlining indicates new text and striking through indicates deleted text. 2 General matters …
2.4 Record-keeping
2.4.1 G (1) The Senior Management Arrangements, Systems and Controls
sourcebook (SYSC) contains high-level record-keeping requirements (see SYSC 3.2.20R and , SYSC 9.1.1R and SYSC 9.1.1AR). …

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Annex L
Amendments to the Market Conduct sourcebook (MAR) In this Annex underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 5 Multilateral trading facilities (MTFs)
5.1 Application
[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering various topics relating to automated trading and direct electronic access. See www.esma.europa.eu/system/files/esma_2012_122_en.pdf] Who and what?
5.1.1 R This chapter applies to:
(1) a UK domestic firm which operates an MTF from an establishment in the United Kingdom or elsewhere; or (2) an overseas firm which operates an MTF from an establishment in the United Kingdom. Status of EU provisions as rules in certain instances
5.1.2 R In this chapter, provisions marked “EU” apply to an overseas firm as if they
were rules. [deleted]
5.1.3 G GEN 2.2.22AR applies to ensure that a third country investment firm should
not be treated in a more favourable way than an EEA firm.
5.2 Purpose
5.2.1 G The purpose of this chapter is to implement the provisions of MiFID relating
to firms operating MTFs, specifically articles 14, 26, 29 and 30 18, 19, 31, 32, 33, 48, 49 and 50 of MiFID. This chapter does not apply to bilateral systems, which are excluded from the MTF definition. It sets out for reference other provisions of the MiFID Regulation relevant to the articles being implemented.
5.3 Trading process requirements
Rules, procedures and arrangements

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5.3.1 R A firm operating an MTF must have:
(1) transparent and non-discretionary rules and procedures for fair and orderly trading; [Note: Article 14 article 18(1) of MiFID] (2) objective criteria for the efficient execution of orders which are established and implemented in non-discretionary rules; [Note: Article 14(1) articles 18(1) and 19(1) of MiFID] (2A) arrangements for the sound management of the technical operations of the facility, including the establishment of effective contingency arrangements to cope with the risks of systems disruption; [Note: article 18(1) of MiFID] (3) transparent rules regarding the criteria for determining the financial instruments that can be traded under its systems; [Note: Subparagraph subparagraph 1 of Article 14 article 18(2) of MiFID] (4) published, transparent and non-discriminatory rules, based on objective criteria, governing access to its facility, and which rules must provide that its members or participants are investment firms, CRD credit institutions or other persons persons who:
(a) are fit and proper of sufficient good repute; (b) have a sufficient level of trading ability and, competence and experience; (c) where applicable, have adequate organisational arrangements; and (d) have sufficient resources for the role they are to perform, taking into account the different financial arrangements that the firm operating the MTF may have established in order to guarantee the adequate settlement of transactions; and [Note: Article 14(4) and 42(3) articles 18(3), 19(2) and 53(3) of MiFID] (5) where applicable must arrangements to provide, or be satisfied that there is access to, sufficient publicly available information to enable its users to form an investment judgment judgement, taking into account both the nature of the users and the types of instrument traded; and [Note: Subparagraph subparagraph 2 of Article 14 article 18(2) of MiFID]

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(6) (as between the interests of the MTF, its owners, or the firm and those of the members and participants or users in the sound functioning of the trading venue) arrangements to identify clearly and to manage any conflict with adverse consequences for:
(a) the operation of the trading venue for the members and participants or users; or (b) the members and participants or users otherwise. [Note: article 18(4) of MiFID] Functioning of an MTF 5.3.1A R A firm must:
(1) ensure the MTF has at least three materially active members or users who each have the opportunity to interact with all the others in respect of price formation; [Note: article 18(7) of MiFID] (2) have arrangements to ensure it is adequately equipped to manage the risks to which it is exposed, to implement appropriate arrangements and systems to identify all significant risks to its operation and put in place effective measures to mitigate those risks; [Note: article 19(3)(a) of MiFID] (3) have available at the time of authorisation and on an ongoing basis, sufficient financial resources to facilitate its orderly functioning, having regard to the nature and extent of the transactions concluded on the venue and the range and degree of the risks to which it is exposed; [Note: article 19(3)(c) of MiFID] (4) not execute orders against proprietary capital, or engage in matched principal trading; [Note: article 19(5) of MiFID] (5) make available data relating to the quality of execution of transactions on that venue, including details about price, costs, speed and likelihood of execution for individual financial instruments to the public in the following manner:
(a) at least on an annual basis; and
(b) without any charges; and

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[Note: article 27(3) of MiFID]
(6) provide the following to the FCA:
(a) a detailed description of the functioning of the MTF, including any links to or participation by a regulated market, an MTF, OTF or systematic internaliser owned by the same firm; and (b) a list of its members, participants and users. [Note: article 18(10) of MiFID and MiFID ITS 19 with regard to the content and format of the description of the functioning of MTFs] 5.3.1B G The requirement in MAR 5.3.1AR(4) does not prevent a firm, with the appropriate permission, from executing orders against its proprietary capital or engaging in matched principal trading outside the MTF it operates. Publication of pre and post-trade information for shares not admitted to trading on a regulated market
5.3.2 G In the case of shares not admitted to trading on a regulated market, the FCA
expects that in order to fulfil the requirements in MAR 5.3.1R as regards fair and orderly trading, the firm operating the MTF will make public on reasonable commercial terms:
(1) on a continuous basis during normal trading hours, information about the quotes and orders relating to these shares which the MTF displays or advertises to its users; and (2) as close to real time as possible, information about the price, volume and time of transactions in these shares executed under its systems. [deleted]
5.3.3 G The firm may make information about a large quote, order or transaction
available under MAR 5.3.2G on a delayed basis, but only to the extent reasonably necessary to protect the interests of the relevant user who placed the order, provided the quote or executed the transaction. [deleted] Publication of post-trade information for financial instruments other than shares
5.3.4 G Where financial instruments other than shares are traded on an MTF, and the
same or substantially similar instruments are also traded on a UK RIE, a regulated market or an EEA commodities market, the FCA expects that in order to fulfil the requirements in MAR 5.3.1R as regards fair and orderly trading, the firm operating the MTF will make public, on reasonable commercial terms and as close to real time as possible, the price, volume and time of the transactions executed under its systems. [deleted]
5.3.5 G For large transactions in debt securities, an indication that volume exceeded
a certain figure (not being less than £7 million or its equivalent) instead of

FCA 2017/xx the actual volume is sufficient transparency of the volume of a trade. [deleted]
5.3.6 G The firm may make information about a large quote, order or transaction
available under MAR 5.3.4G on a delayed basis, but only to the extent reasonably necessary to protect the interests of the relevant user who placed the order, provided the quote or executed the transaction. [deleted] Operation of a primary market in shares financial instruments not admitted to trading on a regulated market
5.3.7 G The FCA will be minded to impose a variation on the Part 4A Permission
permission of an MTF operator (other than an SME growth market) that operates a primary market in shares financial instruments not admitted to trading on a regulated market in order to ensure its fulfilment of the requirements in MAR 5.3.1R as regards fair and orderly trading. Transferable securities traded without issuer consent
5.3.8 R Where a transferable security, which has been admitted to trading on a
regulated market, is also traded on an MTF without the consent of the issuer, the firm operating the MTF must not make the issuer subject to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF. [Note: Article 14(6) article 18(8) of MiFID] After MAR 5.3 (Trading process requirements) insert the following new section. All the text is new and is not underlined. 5.3A Systems and controls for algorithmic trading Systems and controls 5.3A.1 R A firm must ensure that the systems and controls, including procedures and arrangements, used in the performance of its activities are adequate, effective and appropriate for the scale and nature of its business. 5.3A.2 R MAR 5.3A.1R applies in particular to systems and controls concerning:
(1) the resilience of the firm’s trading systems; (2) its capacity to deal with peak order and message volumes; (3) the ability to ensure orderly trading under conditions of severe market stress; (4) the effectiveness of business continuity arrangements to ensure the continuity of the MTF’s services if there is any failure of its trading

FCA 2017/xx systems, including the testing of the MTF’s systems and controls; (5) the ability to reject orders that exceed predetermined volume and price thresholds or which are clearly erroneous; (6) the ability to ensure that algorithmic trading systems cannot create or contribute to disorderly trading conditions on the trading venue; (7) the ability to ensure any disorderly trading conditions which do arise from the use of algorithmic trading systems are capable of being managed, including systems to limit the ratio of unexecuted orders to transactions that may be entered into the MTF’s trading system by a member or participant; (8) the ability to ensure the flow of orders is capable of being slowed down if there is a risk of system capacity being reached; (9) the ability to limit and enforce the minimum tick size which may be executed on the MTF; and (10) the requirement for members and participants to carry out appropriate testing of algorithms, including providing environments to facilitate that testing. [Note: article 48(1),(4) and (6) of MiFID, MiFID RTS 7, MiFID RTS 9, and MiFID RTS 11] Market making agreements 5.3A.3 R A firm must:
(1) have written agreements with all investment firms pursuing a market making strategy on trading venues operated by it (market making agreements); (2) have schemes, appropriate to the nature and scale of a trading venue, to ensure that a sufficient number of investment firms enter into market making agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis; (3) monitor and enforce compliance with the market making agreements; (4) inform the FCA of the content of its market making agreements; and (5) provide the FCA with any information it requests which the FCA reasonably requires to be satisfied that the market making agreements comply with this rule. [Note: article 48(2) and (3) of MiFID, and MiFID RTS 8]

FCA 2017/xx
5.3A.4 R A market making agreement in MAR 5.3A.3R(1) must specify:
(1) the obligations of the investment firm in relation to the provision of liquidity; (2) where applicable, any obligations arising, or rights accruing, from the participation in a liquidity scheme mentioned in MAR 5.3A.3R(2); and (3) any incentives in terms of rebates or otherwise offered by the firm to the investment firm in order for it to provide liquidity to the MTF on a regular and predictable basis and, where applicable, any other rights accruing to the investment firm as a result of participation in the liquidity scheme. [Note: article 48(3) of MiFID and MiFID RTS 8] Measures to prevent disorderly markets 5.3A.5 R A firm must have the ability to:
(1) temporarily halt or constrain trading on the MTF if there is a significant price movement in a financial instrument on the MTF or a related trading venue during a short period; and (2) in exceptional cases, cancel, vary or correct any transaction. [Note: article 48(5) of MiFID] 5.3A.6 R For the purposes of MAR 5.3A.5R and to avoid significant disruptions to the orderliness of trading, a firm must calibrate the parameters for halting trading in a way which takes into account the following:
(1) the liquidity of different asset classes and subclasses; (2) the nature of the trading venue market model; and (3) the types of users. [Note: article 48(5) of MiFID] 5.3A.7 R The firm must report the parameters mentioned in MAR 5.3A.6R to the FCA in writing, by electronic mail to an address for the usual supervisory contact of the firm at the FCA, and obtain an electronic confirmation of receipt. [Note: article 48(5) of MiFID] 5.3A.8 R A firm must have systems and procedures to notify the FCA if:
(1) an MTF operated by the firm is material in terms of the liquidity of trading of a financial instrument in the EEA; and

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(2) trading is halted in that instrument.
[Note: article 48(5) of MiFID]
Direct electronic access
5.3A.9 R A firm which permits direct electronic access to an MTF it operates must:
(1) not permit members or participants of the MTF to provide such services unless they are:
(a) investment firms authorised under MiFID; or (b) CRD credit institutions; or (c) third country investment firms; or (d) third country firms providing the direct electronic access in the course of exercising rights under article 46.1 of MiFIR; or (e) third country firms providing the direct electronic access in the course of exercising rights under article 47.3 of MiFIR; or (f) third country firms providing the direct electronic access in accordance with the relevant UK national regime for the purposes of article 54.1 (transitional provisions) of MiFIR; or (g) a third country firm which does not come within MAR 5.3A.9R(1)(d) to (f) but is otherwise permitted to provide the direct electronic access under the Act; or (h) firms that come within article 2.1(a), (e), (i), or (j) of MiFID and have a Part 4A permission relating to investment services or activities; (2) set, and apply, criteria for the suitability of persons to whom direct electronic access services may be provided; (3) ensure that the member or participant of the MTF retains responsibility for adherence to the requirements of MiFID in respect of orders and trades executed using the direct electronic access service; (4) set standards for risk controls and thresholds on trading through direct electronic access; (5) be able to distinguish and if necessary stop orders or trading on that trading venue by a person using direct electronic access separately from:
(a) other orders; and

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(b) trading by the member or participant providing the direct electronic access; and (6) have arrangements to suspend or terminate the provision of direct electronic access on that market by a member or participant in the case of any non-compliance with this rule. [Note: article 48(7) of MiFID] Co-location 5.3A.10 R Where a firm permits co-location in relation to the MTF, its rules on colocation services must be transparent, fair and non-discriminatory. [Note: article 48(8) of MiFID and MiFID RTS 10] Fee structures 5.3A.11 R A firm’s fee structure, for all fees it charges and rebates it grants in relation to the MTF, must:
(1) be transparent, fair and non-discriminatory; (2) not create incentives to place, modify or cancel orders, or execute transactions, in a way which contributes to disorderly trading or market abuse; and (3) impose market making obligations in individual financial instruments or suitable baskets of financial instruments for any rebates that are granted. [Note: article 48(9) of MiFID and MiFID RTS 10] 5.3A.12 G Nothing in MAR 5.2A.11R prevents a firm:
(1) adjusting its fees for cancelled orders according to the length of time the order was maintained; (2) calibrating its fees to each financial instrument to which they apply; (3) imposing a higher fee:
(a) for placing an order which is cancelled than for an order which is executed; (b) on participants placing a high ratio of cancelled orders to executed orders; and (c) on a person operating a high-frequency algorithmic trading technique, in order to reflect the additional burden on system capacity.

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[Note: article 48(9) of MiFID]
Flagging orders, tick sizes and clock synchronisation 5.3A.13 R A firm must require members and participants of an MTF operated by it to flag orders generated by algorithmic trading in order for the firm to be able to identify the following:
(1) different algorithms used for the creation of orders; and (2) the persons initiating those orders. [Note: article 48(10) of MiFID] 5.3A.14 R A firm must adopt tick size regimes in:
(1) shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments traded on the MTF; and (2) any other financial instrument which is traded on that trading venue, as required by a regulatory technical standard made under article
49.3 or 49.4 of MiFID.
[Note: article 49 of MiFID and MiFID RTS 11] 5.3A.15 R The tick size regime referred to in MAR 5.3A.14R must:
(1) be calibrated to reflect the liquidity profile of the financial instrument in different markets and the average bid-ask spread, taking into account the desirability of enabling reasonably stable prices without unduly constraining further narrowing of spreads; and (2) adapt the tick size for each financial instrument appropriately. [Note: article 49 of MiFID and MiFID RTS 11] 5.3A.16 G Nothing in MAR 5.3A.14R or MAR 5.3A.15R requires a firm to act inconsistently with any regulatory technical standards made under article
49.3 or 49.4 of MiFID.
[Note: article 49 of MiFID]
5.3A.17 R A firm must synchronise the business clocks it uses to record the date and time of any reportable event. [Note: article 50 of MiFID and MiFID RTS 25] 5.3A.18 G For the purpose of MAR 5.3A.17R, the regulatory technical standards made under article 50 of MiFID provide further requirements. Amend the following as shown.

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5.4 Finalisation of transactions
5.4.1 R A firm operating an MTF must:
(1) clearly inform its users of their respective responsibilities for the settlement of transactions executed in that its MTF; and (2) have in place the arrangements necessary to facilitate the efficient settlement of the transactions concluded under its systems. [Note: Article 14(5) articles 18(6) and 19(3)(b) of MiFID] [Note: in relation to derivative transactions, MiFID RTS 26 contains requirements on the systems for the clearing of such transactions]
5.5 Monitoring compliance with the rules of the MTF
5.5.1 R A firm operating an MTF must:
(1) have effective arrangements and procedures relevant to the its MTF, for the regular monitoring of the compliance by its users with its rules; and (2) monitor the transactions undertaken by its users under its systems in order to identify breaches of those rules, disorderly trading conditions, system disruptions in relation to a financial instrument, or conduct that may involve market abuse market abuse. [Note: Article 26 article 31(1) of MiFID]
5.6 Reporting requirements
5.6.1 R A firm operating an MTF must:
(1) report to the FCA any:
(a) significant breaches of the firm's rules; (b) disorderly trading conditions; and (c) conduct that may involve market abuse market abuse; and (d) system disruptions in relation to a financial instrument; (2) supply the information required under this rule without delay to the FCA and any other authority competent for the investigation and

FCA 2017/xx prosecution of market abuse market abuse; and (3) provide full assistance to the FCA, and any other authority competent for the investigation and prosecution of market abuse market abuse, in its investigation and prosecution of market abuse market abuse occurring on or through the firm's systems. [Note: Article 26 article 31(2) of MiFID and articles 81 and 82 of the MiFID Org Regulation] After MAR 5.6 insert the following new section. All the text is new and is not underlined. 5.6A Suspension and removal of financial instruments 5.6A.1 R A firm must:
(1) not exercise any power under its rules to suspend or remove from trading any financial instrument which no longer complies with its rules, where such a step would be likely to cause significant damage to the interest of investors or the orderly functioning of the trading venue; (2) where it does suspend or remove from trading a financial instrument, also suspend or remove derivatives that relate, or are referenced, to that financial instrument, where necessary to support the objectives of the suspension or removal of the underlying; and (3) make public any decision in (2) and notify the FCA of it. [Note: article 32 of MiFID, article 80 of the MiFID Org Regulation, MiFID RTS 18 and MiFID ITS 2] Amend the following as shown.
5.7 Pre- and post-trade transparency requirements for shares equity and nonequity instruments: form of waiver and deferral
…
5.7.1A D A firm that makes an application to the FCA for a waiver in accordance with articles 4 or 9 of MiFIR (in relation to pre-trade transparency for equity or non-equity instruments) must make it in the form set out in MAR 5 Annex 1D.

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[Note: articles 4 and 9 of MiFIR, MiFID RTS 1 and MiFID RTS 2] 5.7.1B G According to article 4(7) of MiFIR, waivers granted by competent authorities in accordance with articles 29(2) and 44(2) of Directive 2004/39/EC and articles 18, 19 and 20 of Regulation (EC) No 1287/2006 before 3 January 2018 shall be reviewed by ESMA by 3 January 2020. ESMA shall issue an opinion to the competent authority, assessing the continued compatibility of those waivers with the requirements established in MiFIR and any regulations made pursuant to it. The FCA will cooperate with ESMA in relation to the continued effect of existing waivers. 5.7.1C D A firm intending to apply to the FCA for deferral in accordance with articles 7 or 11 of MiFIR in relation to post-trade transparency for equity or nonequity instruments must apply in writing to the FCA. [Note: articles 7 and 11 of MiFIR, MiFID RTS 1 and MiFID RTS 2] 5.7.1D G A firm should have regard to the urgency and significance of a matter and, if appropriate, should also notify its usual supervisory contact at the FCA by telephone or by other prompt means of communication, before submitting a written application. Oral notifications should be given directly to the firm’s usual supervisory contact at the FCA. An oral notification left with another person or on a voicemail or other automatic messaging service is unlikely to have been given appropriately. Pre-trade information
5.7.2 EU 1. An investment firm or market operator operating an MTF or a
regulated market shall, in respect of each share admitted to trading on a regulated market that is traded within a system operated by it and specified in Table 1 of Annex II [of the MiFID Regulation], make public the information set out in paragraphs 2 to 6.
2. Where one of the entities referred to in paragraph 1 operates a
continuous auction order book trading system, it shall, for each share as specified in paragraph 1, make public continuously throughout its normal trading hours the aggregate number of orders and of the shares those orders represent at each price level, for the five best bid and offer price levels.
3. Where one of the entities referred to in paragraph 1 operates a quotedriven trading system, it shall, for each share as specified in
paragraph 1, make public continuously throughout its normal trading hours the best bid and offer by price of each market maker in that share, together with the volumes attaching to those prices. The quotes made public shall be those that represent binding commitments to buy and sell the shares and which indicate the price and volume of shares in which the registered market makers are prepared to buy or sell. In exceptional market conditions, however, one-way prices may be

FCA 2017/xx allowed for a limited time.
4. Where one of the entities referred to in paragraph 1 operates a
periodic auction trading system, it shall, for each share specified in paragraph 1, make public continuously throughout its normal trading hours the price that would best satisfy the system's trading algorithm and the volume that would potentially be executable at that price by participants in that system.
5. Where one of the entities referred to in paragraph 1 operates a
trading system which is not wholly covered by paragraph 2 or 3 or 4, either because it is a hybrid system falling under more than one of those paragraphs or because the price determination process is of a different nature, it shall maintain a standard of pre-trade transparency that ensures that adequate information is made public as to the price level of orders or quotes for each share specified in paragraph 1, as well as the level of trading interest in that share. In particular, the five best bid and offer price levels and/or two-way quotes of each market maker in that share shall be made public, if the characteristics of the price discovery mechanism permit it.
6. A summary of the information to be made public in accordance with
paragraphs 2 to 5 is specified in Table 1 of Annex II [of the MiFID Regulation]. [Note: Article 17 of the MiFID Regulation] [deleted]
Table 1: Information to be made public in accordance with Article 17
5.7.3 EU Type of
system
Description of system Summary of information to be made public, in accordance with Article 17 Continuous auction order book trading system A system that by means of an order book and a trading algorithm operated without human intervention matches sell orders with matching buy orders on the basis of the best available price on a continuous basis The aggregate number of orders and the shares they represent at each price level, for at least the five best bid and offer price levels Quotedriven trading system A system where transactions are concluded on the basis of firm quotes that are continuously made available to participants, which requires the market makers to maintain quotes in a size that balances the needs of members and The best bid and offer by price of each market maker in that share, together with the volumes attaching to those prices

FCA 2017/xx participants to deal in a commercial size and the risk to which the market maker exposes itself Periodic auction trading system A system that matches orders on the basis of a periodic auction and a trading algorithm operated without human intervention The price at which the auction trading system would best satisfy its trading algorithm and the volume that would potentially be executable at that price Trading system not covered by first three rows A hybrid system falling into two or more of the first three rows or a system where the price determination process is of a different nature than that applicable to the types of system covered by first three rows Adequate information as to the level of orders or quotes and of trading interest; in particular, the five best bid and offer price levels and/or two-way quotes of each market maker in the share, if the characteristics of the price discovery mechanism so permit [Note: Table 1, Annex II of the MiFID Regulation] [deleted] Publication of pre-trade information
5.7.4 EU 1. A regulated market, MTF or systematic internaliser shall be
considered to publish pre-trade information on a continuous basis during normal trading hours if that information is published as soon as it becomes available during the normal trading hours of the regulated market, MTF or systematic internaliser concerned, and remains available until it is updated.
2. Pre-trade information … shall be made available as close to real time
as possible …
[Note: Article 29(1) and (2) of the MiFID Regulation] [deleted]
5.7.5 EU Information which is required to be made available as close to real time as
possible should be made available as close to instantaneously as technically possible, assuming a reasonable level of efficiency and of expenditure on systems on the part of the person concerned. The information should only be published close to the three minute maximum limit in exceptional cases where the systems available do not allow for a publication in a shorter period of time. [Note: Recital (18) to the MiFID Regulation] [deleted]

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Disapplication of the pre-trade transparency requirements
5.7.6 G The obligation in MAR 5.7.1R(1) to make public certain pre-trade
information is disapplied in MAR 5.7.1R(2) based on the market model or the type and size of orders in the cases identified in the MiFID Regulation, and as reproduced for reference in MAR 5.7.8EU, MAR 5.7.9EU, MAR 5.7.10EU and MAR 5.7.11EU. In particular, the obligation is disapplied in respect of transactions that are large in scale compared with the normal market size for the share or type of share in question. [Note: Article 29(2) of MiFID and Recital 12 and Articles 18, 19, 20, 33 and 34 of the MiFID Regulation] [deleted]
5.7.7 EU If granting waivers in relation to pre-trade transparency requirements, or
authorising the deferral of post-trade transparency obligations, competent authorities should treat all regulated markets and MTFs equally and in a non-discriminatory manner, so that a waiver or deferral is granted either to all regulated markets and MTFs that they authorise under [the MiFID] Directive 2004/39/EC, or to none. Competent authorities which grant the waivers or deferrals should not impose additional requirements. [Note: Recital 12 to the MiFID Regulation] [deleted]
5.7.8 EU 1. Waivers in accordance with Article 29(2) and 44(2) of [the MiFID]
Directive 2004/39/EC may be granted by the competent authorities for systems operated by an MTF or a regulated market, if those systems satisfy one of the following criteria:
(a) they must be based on a trading methodology by which the price is determined in accordance with a reference price generated by another system, where that reference price is widely published and is regarded generally by market participants as a reliable reference price; (b) they formalise negotiated transactions, each of which meets one of the following criteria:
(i) it is made at or within the current volume weighted spread reflected on the order book or the quotes of the market makers of the regulated market or MTF operating that system or, where the share is not traded continuously, within a percentage of a suitable reference price, being a percentage and a reference price set in advance by the system operator; (ii) it is subject to conditions other than the current market price of the share.

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For the purposes of point (b), the other conditions specified in the rules of the regulated market or MTF for a transaction of this kind must also have been fulfilled. In the case of systems having functionality other than as described in points (a) or (b), the waiver shall not apply to that other functionality.
2. Waivers in accordance with Articles 29(2) and 44(2) of [the MiFID]
Directive 2004/39/EC based on the type of orders may be granted only in relation to orders held in an order management facility maintained by the regulated market or the MTF pending their being disclosed to the market. [Note: Article 18 of the MiFID Regulation] [deleted]
5.7.9 EU For the purpose of Article 18(1)(b) [of the MiFID Regulation] a negotiated
transaction shall mean a transaction involving members or participants of a regulated market or an MTF which is negotiated privately but executed within the regulated market or MTF and where that member or participant in doing so undertakes one of the following tasks:
(a) dealing on own account with another member or participant who acts for the account of a client; (b) dealing with another member or participant, where both are executing orders on own account; (c) acting for the account of both the buyer and seller; (d) acting for the account of the buyer, where another member or participant acts for the account of the seller; (e) trading for own account against a client order. [Note: Article 19 of the MiFID Regulation] [deleted]
5.7.10 EU An order shall be considered to be large in scale compared with normal
market size if it is equal to or larger than the minimum size of order specified in Table 2 in Annex II [of the MiFID Regulation]. For the purposes of determining whether an order is large in scale compared to normal market size, all shares admitted to trading on a regulated market shall be classified in accordance with their average daily turnover, which shall be calculated in accordance with the procedure set out in Article 33 [of the MiFID Regulation]. [Note: Article 20 of the MiFID Regulation] [deleted]

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Table 2: Orders large in scale compared with normal market size
5.7.11 EU Class in terms
of average daily turnover
(ADT)
ADT<
€500
000
€500 000
≤ ADT <
€1 000
000
€1 000
000 ≤
ADT <
€25 000
000
€25 000
000≤
ADT <
€50 000
000
ADT ≥
€50 000
000
Minimum size of order qualifying as large in scale compared with normal market size €50 000 €100 000 €250 000 €400 000 €500 000 [Note: Table 2, Annex II of the MiFID Regulation] [deleted]
5.7.12 G The FCA will publish on its website the calculations and estimates for shares
admitted to trading on a regulated market, made by the FCA under the provisions in Articles 33 and 34 of the MiFID Regulation. [deleted] MAR 5.8 and MAR 5.9 are deleted in their entirety. The deleted text is not shown.
5.8 Provisions common to pre- and post-trade transparency requirements for
shares [deleted]
5.9 Post-trade transparency requirements for shares [deleted]
After the deleted MAR 5.9 insert the following link to a new form as a separate Annex. All the text is new and is not underlined. 5 Annex 1D Form in relation to pre-trade transparency https://www.fca.org.uk/publication/forms/mifid-transparency-waiver-form.doc … After the new MAR 5 Annex 1R insert the following new chapter. All the text is new and is not underlined.

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5A Organised trading facilities (OTFs)
5A.1 Application
Who and what?
5A.1.1 R This chapter applies to:
(1) a UK domestic firm which operates an OTF from an establishment in the United Kingdom or elsewhere; or (2) an overseas firm which operates an OTF from an establishment in the United Kingdom. 5A.1.2 G In addition:
(1) In accordance with paragraph 15(9) of the Schedule to the Recognition Requirement Regulations and REC 2.16A.1GR, MAR 5A.3.9R applies to a UK RIE as though it was an investment firm. (2) GEN 2.2.22AR applies to ensure that a third country investment firm should not be treated in a more favourable way than an EEA firm. 5A.2 Purpose 5A.2.1 G The purpose of this chapter is to implement the provisions of MiFID relating to firms operating OTFs, specifically articles 18, 20, 31, 32, 48, 49 and 50 of MiFID. 5A.2.2 G MAR 5A.3.9R also sets out how the obligations of an investment firm under articles 16, 24, 25, 27 and 28 apply to a firm operating an OTF in respect of that operation. 5A.2.3 G This chapter does not apply to bilateral systems, which are excluded from the OTF definition. 5A.3 Specific requirements for OTFs Executing orders 5A.3.1 R A firm must:
(1) execute orders on a discretionary basis in accordance with MAR 5A.3.2R; (2) unless permitted in MAR 5A.3.5R, not execute any client orders against its proprietary capital or the proprietary capital of any entity that is part of the same group or legal person as the firm; and

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(3) ensure that the operation of an OTF and of a systematic internaliser does not take place within the same legal entity, and that the OTF does not connect with another OTF or with a systematic internaliser in a way which enables orders in the different OTFs or systematic internaliser to interact. [Note: article 20(1) to (4) and 20(6) of MiFID] 5A.3.2 R The discretion which the firm must exercise in executing a client order must be either, or both, of the following:
(1) the first discretion is whether to place or retract an order on the OTF; (2) the second discretion is whether to match a specific client order with other orders available on the OTF at a given time, provided the exercise of such discretion is in compliance with specific instructions received from the client and in accordance with the firm’s obligations under article 27 of MiFID. [Note: article 20(6) of MiFID] 5A.3.3 G Where the OTF crosses client orders, the firm may decide if, when and how much of two or more orders it wants to match. In addition, subject to the requirements of this section, the firm may facilitate negotiation between clients so as to bring together two or more potentially comparable trading interests in a transaction. [Note: article 20(6) of MiFID] 5A.3.4 G MAR 5A.3 does not prevent a firm from engaging another investment firm to carry out market making on an independent basis on an OTF operated by it provided the investment firm does not have close links with the firm. [Note: article 20(5) of MiFID] Proprietary trading 5A.3.5 R A firm must not engage in:
(1) matched principal trading on an OTF operated by it except in bonds, structured finance products, emission allowances and derivatives which have not been declared subject to the clearing obligation in accordance with article 5 of EMIR, and where the client has consented; or (2) dealing on own account on an OTF operated by it, excluding matched principal trading, except in sovereign debt instruments for which there is not a liquid market. [Note: article 20(2) and (3) of MiFID]

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5A.3.6 R For the purposes of MAR 5A.3.5R(2), a “liquid market” means a market for a financial instrument or a class of financial instruments, where there are ready and willing buyers and sellers on a continuous basis, assessed in accordance with the following criteria, taking into consideration the specific market structures of the particular financial instrument or of the particular class of financial instruments:
(1) the average frequency and size of transactions over a range of market conditions, having regard to the nature and life cycle of products within the class of financial instrument; (2) the number and type of market participants, including the ratio of market participants to traded instruments in a particular product; and (3) the average size of spreads, where available. [Note: article 4(1)(25) of MiFID] 5A.3.7 R A firm engaging in matched principal trading in accordance with MAR 5A.3.5R(1) must establish arrangements to ensure compliance with the definition of matched principal trading. [Note: article 20(1) and (7) of MiFID] 5A.3.8 G Matched principal trading does not exclude the possibility of settlement risk, and, accordingly, firms should take appropriate steps to minimise this risk. For guidance relating to the treatment of matched principal trading for the purposes of IFPRU prudential categorisation, see PERG 13 Q61 and Q64. Other MiFID obligations 5A.3.9 R A firm must comply with the obligations under the following provisions of MiFID, in the course of operating an OTF:
(1) articles 16(2), 16(3) (first subparagraph), 16(4), 16(5), 16(6), 16(7), 16(8), 16(9), and 16(10); (2) articles 24(1), (3), (4), (5), (9), (10) and (11); (3) articles 25(3) (except to the extent that article 25(4) applies), 25(5), and 25(6) (to the extent applicable); (4) article 27; and (5) article 28. [Note: article 20(8) of MiFID] Reporting to the FCA 5A.3.10 R A firm must:

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(1) in respect of an OTF operated by it, or such a facility it proposes to operate, provide to the FCA a detailed explanation of:
(a) why the OTF does not correspond to, and cannot operate as, an MTF, a regulated market or a systematic internaliser; (b) how discretion will be exercised in executing client orders; and (c) its use of matched principal trading; and (2) supply the information in (1) to the FCA in writing, by electronic mail to an address for the usual supervisory contact of the firm at the FCA, and obtain an electronic confirmation of receipt. [Note: article 20(7) of MiFID] 5A.3.11 G A person operating an organised trading facility cannot also provide the service of a systematic internaliser, irrespective of whether the systematic internaliser trades different financial instruments or types of financial instruments to those traded on the OTF. 5A.4 Trading process requirements Rules, procedures and arrangements 5A.4.1 R A firm must have:
(1) transparent rules and procedures for fair and orderly trading; [Note: article 18(1) of MiFID] (2) objective criteria for the efficient execution of orders which are established and implemented in non-discretionary rules; [Note: article 18(1) of MiFID] (3) arrangements for the sound management of the technical operations of the facility, including the establishment of effective contingency arrangements to cope with the risks of systems disruption; [Note: article 18(1) of MiFID] (4) transparent rules regarding the criteria for determining the financial instruments that can be traded under its systems; [Note: subparagraph (1) of article 18(2) of MiFID] (5) arrangements to provide, or be satisfied that there is access to, sufficient publicly available information to enable its users to form an investment judgement, taking into account both the nature of the users

FCA 2017/xx and the types of instrument traded; [Note: subparagraph (2) of article 18(2) of MiFID] (6) transparent and non-discriminatory rules, based on objective criteria, governing access to its facility and which must be published, maintained and implemented; and [Note: article 18(3) of MiFID] (7) (as between the interests of the OTF, its owners, or the firm and those of the members and participants or users in the sound functioning of the trading venue) arrangements to identify clearly and to manage any conflict with adverse consequences for:
(a) the operation of the trading venue for the members and participants or users; or (b) the members and participants or users otherwise. [Note: article 18(4) of MiFID] Functioning of an OTF 5A.4.2 R A firm must:
(1) ensure the OTF has at least three materially active members or users who each have the opportunity to interact with all the others in respect of price formation; [Note: article 18(7) of MiFID] (2) provide the following to the FCA:
(a) a detailed description of the functioning of the OTF, including any links to or participation by a regulated market, an MTF or OTF or systematic internaliser owned by the same firm; and (b) a list of its members, participants and users; and [Note: article 18(10) of MiFID and MiFID ITS 19 with regard to the content and format of the description of the functioning of MTFs and OTFs] (3) make available data relating to the quality of execution of transactions on that venue, including details about price, costs, speed and likelihood of execution for individual financial instruments to the public in the following manner:
(a) at least on an annual basis; and
(b) without any charges.

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[Note: article 27(3) of MiFID]
Transferable securities traded without issuer consent 5A.4.3 R Where a transferable security, which has been admitted to trading on a regulated market, is also traded on an OTF without the consent of the issuer, the firm operating the OTF must not make the issuer subject to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that OTF. [Note: article 18(8) of MiFID] 5A.5 Systems and controls for algorithmic trading Systems and controls 5A.5.1 R A firm must ensure that the systems and controls, including procedures and arrangements, used in the performance of its activities are adequate, effective and appropriate for the scale and nature of its business. 5A.5.2 R MAR 5A.5.1R applies in particular to systems and controls concerning:
(1) the resilience of the firm’s trading systems; (2) its capacity to deal with peak order and message volumes; (3) the ability to ensure orderly trading under conditions of severe market stress; (4) the effectiveness of business continuity arrangements to ensure the continuity of the OTF’s services if there is any failure of its trading systems, including the testing of the OTF’s systems and controls; (5) the ability to reject orders that exceed predetermined volume and price thresholds or which are clearly erroneous; (6) the ability to ensure that algorithmic trading systems cannot create or contribute to disorderly trading conditions on the trading venue; (7) the ability to ensure that any disorderly trading conditions which do arise from the use of algorithmic trading systems are capable of being managed, including systems to limit the ratio of unexecuted orders to transactions that may be entered into the OTF’s trading system by a member or participant; (8) the ability to ensure that the flow of orders is capable of being slowed down if there is a risk of system capacity being reached; (9) the ability to limit and enforce the minimum tick size which may be

FCA 2017/xx executed on the OTF; and
(10) the requirement for members and participants to carry out appropriate testing of algorithms, including providing environments to facilitate that testing. [Note: article 48(1), (4) and (6) of MiFID, MiFID RTS 7, MiFID RTS 9, and MiFID RTS 11] Market making agreements 5A.5.3 R A firm must:
(1) have written agreements with all investment firms pursuing a market making strategy on trading venues operated by it (market making agreements); (2) have schemes, appropriate to the nature and scale of a trading venue, to ensure that a sufficient number of investment firms enter into market making agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis; (3) monitor and enforce compliance with the market making agreements; (4) inform the FCA of the content of its market making agreements; and (5) provide the FCA with any information it requests which the FCA reasonably requires to be satisfied that the market making agreements comply with this rule. [Note: article 48(2) and (3) of MiFID and MiFID RTS 8] 5A.5.4 R A market making agreement in MAR 5A.5.3R(1) must specify:
(1) the obligations of the investment firm in relation to the provision of liquidity; (2) where applicable, any obligations arising, or rights accruing, from the participation in a liquidity scheme mentioned in MAR 5A.5.3R(2); and (3) any incentives in terms of rebates or otherwise offered by the firm to the investment firm in order for it to provide liquidity to the OTF on a regular and predictable basis and, where applicable, any other rights accruing to the investment firm as a result of participation in the liquidity scheme. [Note: article 48(3) of MiFID and MiFID RTS 8] Measures to prevent disorderly markets

FCA 2017/xx
5A.5.5 R A firm must have the ability to:
(1) temporarily halt or constrain trading on the OTF if there is a significant price movement in a financial instrument on the OTF or a related trading venue during a short period; and (2) in exceptional cases, cancel, vary, or correct, any transaction. [Note: article 48(5) of MiFID] 5A.5.6 R For the purposes of MAR 5A.5.5R, and to avoid significant disruptions to the orderliness of trading, a firm must calibrate the parameters for halting trading in a way which takes into account the following:
(1) the liquidity of different asset classes and subclasses; (2) the nature of the trading venue market model; and (3) the types of users. [Note: article 48(5) of MiFID] 5A.5.7 R The firm must report the parameters mentioned in MAR 5A.5.6R to the FCA in writing, by electronic mail to an address for the usual supervisory contact of the firm at the FCA, and obtain an electronic confirmation of receipt. [Note: article 48(5) of MiFID] 5A.5.8 R A firm must have systems and procedures to notify the FCA if:
(1) an OTF operated by it is material in terms of the liquidity of the trading of a financial instrument in the EEA; and (2) trading is halted in that instrument. [Note: article 48(5) of MiFID] Direct electronic access 5A.5.9 R A firm which permits direct electronic access to an OTF it operates must:
(1) not permit members or participants of the OTF to provide such services unless they are:
(a) investment firms authorised under MiFID; or (b) CRD credit institutions; or (c) third country investment firms; or (d) third country firms providing the direct electronic access in the course of exercising rights under article 46.1 of MiFIR; or

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(e) third country firms providing the direct electronic access in the course of exercising rights under article 47.3 of MiFIR; or (f) third country firms providing the direct electronic access in accordance with the relevant UK national regime for the purposes of article 54.1 (transitional provisions) of MiFIR; or (g) third country firms which do not come within MAR 5A.5.9R(1)(d) to (f) but are otherwise permitted to provide the direct electronic access under the Act; or (h) firms that come within article 2.1(a), (e), (i), or (j) of MiFID and have a Part 4A permission relating to investment services or activities; (2) set and apply criteria for the suitability of persons to whom direct electronic access services may be provided; (3) ensure that the member or participant of the OTF retains responsibility for adherence to the requirements of MiFID in respect of orders and trades executed using the direct electronic access service; (4) set standards for risk controls and thresholds on trading through direct electronic access; (5) be able to distinguish and if necessary stop orders or trading on that trading venue by a person using direct electronic access separately from:
(a) other orders; and
(b) trading by the member or participant providing the direct electronic access; and (6) have arrangements to suspend or terminate the provision of direct electronic access on that market by a member or participant in the case of any non-compliance with this rule. [Note: article 48(7) of MiFID] Co-location 5A.5.10 R Where a firm permits co-location in relation to the OTF, its rules on colocation services must be transparent, fair and non-discriminatory. [Note: article 48(8) of MiFID and MiFID RTS 10] Fee structures 5A.5.11 R A firm’s fee structure, for all fees it charges and rebates it grants in relation to the OTF, must:

FCA 2017/xx
(1) be transparent, fair and non-discriminatory; (2) not create incentives to place, modify or cancel orders, or execute transactions, in a way which contributes to disorderly trading or market abuse; and (3) impose market making obligations in individual financial instruments or suitable baskets of financial instruments for any rebates that are granted. [Note: article 48(9) of MiFID and MiFID RTS 10] 5A.5.12 G Nothing in MAR 5A.5.11R prevents a firm:
(1) adjusting its fees for cancelled orders according to the length of time for which the order was maintained; (2) calibrating its fees to each financial instrument to which they apply; (3) imposing a higher fee:
(a) for placing an order which is cancelled than an order which is executed; (b) on participants placing a high ratio of cancelled orders to executed orders; and (c) on a person operating a high-frequency algorithmic trading technique, in order to reflect the additional burden on system capacity. [Note: article 48(9) of MiFID] Flagging orders, tick sizes and clock synchronisation 5A.5.13 R A firm must require members and participants of an OTF operated by it to flag orders generated by algorithmic trading in order for the firm to be able to identify the following:
(1) different algorithms used for the creation of orders; and (2) the persons initiating those orders. [Note: article 48(10) of MiFID] 5A.5.14 R The firm must adopt tick size regimes for financial instruments as required by a regulatory technical standard made under article 49.3 or 49.4 of MiFID. [Note: article 49 of MiFID and MiFID RTS 11] 5A.5.15 R The tick size regime referred to in MAR 5A.5.14R must:

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(1) be calibrated to reflect the liquidity profile of the financial instrument in different markets and the average bid-ask spread, taking into account the desirability of enabling reasonably stable prices without unduly constraining further narrowing of spreads; and (2) adapt the tick size for each financial instrument appropriately. [Note: article 49 of MiFID and MiFID RTS 11] 5A.5.16 G Nothing in MAR 5A.5.14R or MAR 5A.5.15R requires a firm to act inconsistently with any regulatory technical standards made under article 49.3 or 49.4 of MiFID. [Note: article 49 of MiFID] 5A.5.17 R The firm must synchronise the business clocks it uses to record the date and time of any reportable event. [Note: article 50 of MiFID and MiFID RTS 25] 5A.5.18 G For the purpose of MAR 5A.5.17R, the regulatory technical standards made under article 50 of MiFID provide further requirements. 5A.6 Finalisation of transactions 5A.6.1 R A firm must:
(1) clearly inform its users of their respective responsibilities for the settlement of transactions executed in its OTF; and (2) have in place the arrangements necessary to facilitate the efficient settlement of the transactions concluded under its systems. [Note: article 18(6) of MiFID] [Note: in relation to derivative transactions, MiFID RTS 26 contains requirements on the systems for clearing of such transactions] 5A.7 Monitoring compliance with the rules of the OTF 5A.7.1 R A firm must:
(1) have effective arrangements and procedures relevant to its OTF for the regular monitoring of the compliance by its users with its rules; and (2) monitor the transactions undertaken by its users under its systems in order to identify breaches of those rules, disorderly trading conditions,

FCA 2017/xx system disruptions in relation to a financial instrument, or conduct that may involve market abuse. [Note: article 31(1) of MiFID] 5A.8 Reporting requirements 5A.8.1 R A firm must:
(1) report to the FCA any:
(a) significant breaches of the firm’s rules; (b) disorderly trading conditions; (c) conduct that may involve market abuse; and (d) system disruptions in relation to a financial instrument; (2) supply the information required under this rule without delay to the FCA and any other authority competent for the investigation and prosecution of market abuse; and (3) provide full assistance to the FCA, and any other authority competent for the investigation and prosecution of market abuse, in its investigation and prosecution of market abuse occurring on or through the firm’s systems. [Note: article 31(2) of MiFID, articles 81 and 82 of the MiFID Org Regulation, MiFID RTS 18 and MiFID ITS 2] 5A.9 Suspension and removal of financial instruments 5A.9.1 R A firm must:
(1) not exercise any power under its rules to suspend or remove from trading any financial instrument which no longer complies with its rules, where such a step would be likely to cause significant damage to the interest of investors or the orderly functioning of the trading venue; (2) where it does suspend or remove from trading a financial instrument, also suspend or remove derivatives that relate or are referenced to that financial instrument, where necessary to support the objectives of the suspension or removal of the underlying; and (3) make public any decision in (2) and notify the FCA of it.

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[Note: article 32 of MiFID, article 80 of the MiFID Org Regulation and MiFID RTS 18] 5A.10 Pre-trade transparency requirements for non-equity instruments: form of waiver 5A.10.1 D A firm that makes an application to the FCA for a waiver in accordance with
article 9 of MiFIR (in relation to pre-trade transparency for non-equity
instruments) must make it in the form set out in MAR 5A Annex 1D. [Note: article 9 of MiFIR and MiFID RTS 2] 5A.11 Post-trade transparency requirements for non-equity instruments: form of deferral 5A.11.1 D A firm intending to apply to the FCA for deferral in accordance with article 11 of MiFIR (in relation to post-trade transparency for non-equity instruments) must apply in writing to the FCA. [Note: article 11 of MiFIR and MiFID RTS 2] 5A.11.2 G A firm should have regard to the urgency and significance of a matter and, if appropriate, should also notify its usual supervisory contact at the FCA by telephone by other prompt means of communication, before submitting written application. Oral notifications should be given directly to the firm’s usual supervisory contact at the FCA. An oral notification left with another person or on a voicemail or other automatic messaging service is unlikely to have been given appropriately. After MAR 5A insert the following link to a new form as a separate Annex. All the text is new and is not underlined. 5A Annex 1D Form in relation to pre-trade transparency https://www.fca.org.uk/publication/forms/mifid-transparency-waiver-form.doc Amend the following as shown. 6 Systematic Internalisers internalisers
6.1 Application
Who and what?

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6.1.1 R Except as regards the reporting requirement in MAR 6.4.1R, this chapter
applies MAR 6.3A (Quality of execution) and MAR 6.4A (Quotes in respect of non-equity instruments) apply to the following firms when dealing in the United Kingdom:
(1) a MiFID investment firm which is a systematic internaliser in shares when dealing in sizes up to standard market size; or (2) a third country investment firm which is a systematic internaliser in shares when dealing in the United Kingdom in sizes up to standard market size. [Note: article 35(8) of MiFID]
6.1.2 R The systematic internaliser reporting requirement in MAR 6.4.1R applies to
an investment firm which is authorised by the FCA.
[Note: articles 15(1) and 18(4) of MiFIR] Status of EU provisions as rules in certain instances
6.1.3 R In this chapter, provisions marked "EU" apply to a third country investment
firm which is a systematic internaliser as if they were rules. [deleted]
6.1.4 G GEN 2.2.22AR applies to ensure that a third country investment firm should
not be treated in a more favourable way than an EEA firm.
6.2 Purpose
6.2.1 G The purpose of this chapter is to implement Article article 27(3) of MiFID,
which deals with the requirements on systematic internalisers for pre-trade transparency in shares, the execution of orders on behalf of clients and standards and conditions for trading to make available to the public data relating to the quality of execution of transactions. It also provides a rule rule (MAR 6.4.1R) requiring investment firms to notify the FCA when they become, or cease to be, a systematic internaliser, and which gives effect to
Article 21(4) articles 15(1) and 18(4) of the MiFID Regulation. The chapter
sets out for reference other provisions of the MiFID Regulation relevant to the articles being implemented MiFIR. Finally, MAR 6.4A.1R makes clear that a firm is not subject to the publication obligations of article 18 of MiFIR if it satisfies the conditions set out in that rule. MAR 6.3 is deleted in its entirety. The deleted text, other than the section title, is not shown.
6.3 Criteria for determining whether an investment firm is a systematic

FCA 2017/xx internaliser [deleted]
After the deleted MAR 6.3 insert the following new section. All the text is new and is not underlined. 6.3A Quality of execution 6.3A.1 R A systematic internaliser must make available the data in MAR 6.3A.2R to the public in the following manner:
(1) at least on an annual basis; and
(2) without any charges.
6.3A.2 R MAR 6.3A.1R applies to data relating to the quality of execution of transactions on that venue, including details about price, costs, speed and likelihood of execution for individual financial instruments. [Note: article 27(3) of MiFID, MiFID RTS 27 and MiFID RTS 28] Amend the following as shown.
6.4 Systematic internaliser reporting requirement
6.4.1 R An investment firm, which is authorised by the FCA, must promptly notify
the FCA in writing of its status as a systematic internaliser in respect of shares admitted to trading on a regulated market:
(1) when it gains that status; or
(2) if it ceases to have that status.
[Note: Article 21(4) of the MiFID Regulation articles 15(1) and 18(4) of MiFIR]
6.4.2 G The notification under MAR 6.4.1R can be addressed to the firm's usual
supervisory contact at the FCA.
After MAR 6.4 (Systematic internaliser reporting requirement) insert the following new
section. All the text is new and is not underlined.

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6.4A Quotes in respect of non-equity instruments 6.4A.1 R An investment firm is not subject to the publication obligations of article 18 of MiFIR if:
(1) it makes an assessment in writing certifying that it meets the conditions specified and measures adopted under article 9 of MiFIR for the waiver; and (2) the FCA has not objected to the assessment. MAR 6.5 to MAR 6.14 and MAR 7 are deleted in their entirety. The deleted text is not shown.
6.5 Obligations on systematic internalisers in shares to make public firm quotes
[deleted]
6.6 Size and content of quotes [deleted]
6.7 Prices reflecting prevailing market conditions [deleted]
6.8 Liquid market for shares, share class, standard market size and relevant
market [deleted]
6.9 Publication of quotes [deleted]
6.10 Execution price of retail client orders [deleted]
6.11 Execution price of professional client orders [deleted]
6.12 Execution price of client orders not matching quotation sizes [deleted]
6.13 Standards and conditions for trading [deleted]
6.14 Limiting risk of exposure to multiple transactions [deleted]
7 Disclosure of information on certain trades undertaken outside a regulated market or MTF [deleted]
7.1 Application [deleted]
7.2 Making post-trade information public [deleted]
7 Annex
1EU
Deferred publication thresholds and delays [deleted]

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After the deleted MAR 7 insert the following new chapter. All the text is new and is not underlined. 7A Algorithmic trading 7A.1 Application Who? 7A.1.1 R This chapter applies to :
(1) a UK MiFID investment firm; and
(2) a third country investment firm, with an establishment in the United Kingdom. What? 7A.1.2 R This chapter applies to a firm in relation to the following activities:
(1) algorithmic trading (MAR 7A.3);
(2) providing the service of DEA to a trading venue (MAR 7A.4); and (3) providing the service of acting as a general clearing member for another person (MAR 7A.5). [Note: this chapter transposes article 17 of MiFID, in respect of the types of firms referred to above. Parts 4 and 5 of the MiFI Regulations set out equivalent requirements in respect of persons exempt under article 2(1)(a), (e), (i) and (j) of MiFID, which are required to comply with article 17(1) to (6) of MiFID due to article 1(5) of MiFID.] Status of EU provisions as rules in certain instances 7A.1.3 G GEN 2.2.22AR applies to ensure that a third country investment firm should not be treated in a more favourable way than an EEA firm. 7A.2 Purpose 7A.2.1 G The purpose of this chapter is to implement article 17 of MiFID, which imposes requirements on investment firms which are:
(1) engaging in algorithmic trading; or
(2) providing the service of DEA to a trading venue; or (3) providing the service of acting as a general clearing member for

FCA 2017/xx another person.
[Note: related requirements imposed under article 48 of MiFID upon trading venues, in respect of members and participants engaging in algorithmic trading and providing the service of DEA, are transposed in REC 2, MAR 5 and MAR 5A] 7A.3 Requirements for algorithmic trading Application 7A.3.1 R This section applies to a firm which engages in algorithmic trading. Systems and controls 7A.3.2 R A firm must have in place effective systems and controls, suitable to the business it operates, to ensure that its trading systems:
(1) are resilient and have sufficient capacity; (2) are subject to appropriate trading thresholds and limits; (3) prevent the sending of erroneous orders, or the systems otherwise functioning in a way that may create or contribute to a disorderly market; and (4) cannot be used for any purpose that is contrary to:
(a) the Market Abuse Regulation; or
(b) the rules of a trading venue to which it is connected.
[Note: article 17(1) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms engaged in algorithmic trading] 7A.3.3 R A firm must:
(1) have in place effective business continuity arrangements to deal with any failure of its trading systems; and (2) ensure that its systems are fully tested and properly monitored to ensure that it meets the requirements of (1) and of MAR 7A.3.2R. [Note: article 17(1) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms engaged in algorithmic trading] Market making

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7A.3.4 R Where a firm engages in algorithmic trading to pursue a market making strategy, it must:
(1) carry out market making continuously during a specified proportion of the trading venue’s trading hours so that it provides liquidity on a regular and predictable basis to that trading venue, except in exceptional circumstances; (2) enter into a binding written agreement with the trading venue which must specify the requirements for the purpose of (1); and (3) have in place effective systems and controls to ensure that it meets the obligations under the agreement in (2). [Note: article 17(3) of MiFID, MiFID RTS 8 specifying the circumstances in which a person would be obliged to enter into the market making agreement referred to in MAR 7A.3.4R(2) and the content of such an agreement, including the specified proportion of the trading venue’s trading hours, and the situations constituting exceptional circumstances, referred to in MAR 7A.3.4R(1)] 7A.3.5 R For the purpose of MAR 7A.3.4R, the firm must take into account:
(1) the liquidity, scale and nature of the specific market; and (2) the characteristics of the instrument traded. [Note: article 17(3) of MiFID] Notifications 7A.3.6 R A firm which is a member or participant of a trading venue must immediately notify the following if it is engaging in algorithmic trading:
(1) the FCA; and
(2) any competent authority of a trading venue in another EEA State where the firm engages in algorithmic trading. [Note: article 17(2) of MiFID] 7A.3.7 R A firm must provide the following, at the FCA’s request, within 14 days from receipt of the request:
(1) a description of the nature of its algorithmic trading strategies; (2) details of the trading parameters or limits to which the firm’s system is subject; (3) evidence that MAR 7A.3.2R (systems and controls) and MAR 7A.3.3R (business continuity and system tests) are met;

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(4) details of the testing of the firm’s systems; (5) the records in MAR 7A.3.8R(2) (accurate and time-sequenced records of all its placed orders); and (6) any further information about the firm’s algorithmic trading and systems used for that trading. [Note: article 17(2) of MiFID] Record keeping 7A.3.8 R A firm must:
(1) arrange for records to be kept to enable it to meet MAR 7A.3.7R; and (2) (where it engages in a high-frequency algorithmic trading technique) store, in the approved form, accurate and time-sequenced records of all its placed orders, including:
(a) cancelled orders;
(b) executed orders; and
(c) quotations on trading venues.
[Note: article 17(2) of MiFID and MiFID RTS 6 specifying the format and content of the approved form referred to in MAR 7A.3.8R(2), and the length of time for which records must be kept by the firm] 7A.4 Requirements when providing direct electronic access Application 7A.4.1 R This section applies to a firm which provides the services of DEA to a trading venue. Systems and controls 7A.4.2 R A firm must have in place systems and controls which:
(1) ensure it conducts an assessment and review of the suitability of clients using the service; (2) prevent clients using the service from exceeding appropriate pre-set trading and credit thresholds; (3) prevent trading by clients which:
(a) may create risks to the firm; or

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(b) may create, or contribute to, a disorderly market; or (c) could be contrary to the Market Abuse Regulation or the rules of the trading venue. [Note: article 17(5) of MiFID] Client dealings 7A.4.3 R (1) A firm must monitor the transactions made by clients using the service to identify:
(a) infringements of the rules of the trading venue; or (b) disorderly trading conditions; or (c) conduct which may involve market abuse and which is to be reported to the FCA. (2) A firm must have a binding written agreement with each client which:
(a) details the essential rights and obligations of both parties arising from the provision of the service; and (b) states that the firm is responsible for ensuring the client complies with the requirements of MiFID and the rules of the trading venue. [Note: article 17(5) of MiFID] Notifications 7A.4.4 R A firm must immediately notify the following if it is providing DEA services:
(1) the FCA; and
(2) the competent authority of any trading venue in the EEA to which the firm provides DEA services. [Note: article 17(5) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms providing direct electronic access] 7A.4.5 R A firm must provide the following, at the FCA’s request, within 14 days from receipt of the request:
(1) a description of the systems mentioned in MAR 7A.4.2R(1); (2) evidence that those systems have been applied; and

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(3) information stored in accordance with MAR 7A.4.6R.
[Note: article 17(5) of MiFID]
Record keeping
7A.4.6 R A firm must arrange for records to be kept:
(1) on the matters referred to in MAR 7A.4.2R in relation to its systems and controls; and (2) in order to enable it to meet any requirement imposed on it under MAR 7A.4.5R. [Note: article 17(5) of MiFID] 7A.5 Requirements when acting as a general clearing member Application 7A.5.1 R This section applies to a firm which provides the service of acting as a general clearing member. Requirements 7A.5.2 R A firm must:
(1) have clear criteria as to the suitability requirements of persons to whom clearing services will be provided; (2) apply those criteria; (3) impose requirements on the persons to whom clearing services are being provided to reduce risks to the firm and to the market; and (4) have a binding written agreement with any person to whom it is providing clearing services, detailing the essential rights and obligations of both parties arising from the provision of the services. [Note: article 17(6) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms acting as general clearing members] After MAR 8 insert the following new chapter. All the text is new and is not underlined. 9 Data reporting service

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9.1 Application, introduction, approach and structure
Application
9.1.1 G This chapter applies to:
(1) a UK person (that is a person whose registered office or head office is located in the UK) seeking authorisation to provide a data reporting service; (2) a UK MiFID investment firm operating a trading venue seeking verification of its rights to provide a data reporting service under regulation 5(b) or (c) of the DRS Regulations; (3) a UK RIE seeking verification of its rights to provide a data reporting service under regulation 5(d) of the DRS Regulations; and (4) a data reporting services provider. This chapter is not limited to operators of trading venues and firms. [Note: article 59 of MiFID] Introduction
9.1.2 G Title V of MiFID sets out harmonised market data services authorisation and
supervision requirements. These are designed to ensure a necessary level of quality of trading activity information across EU financial markets for users, and for competent authorities to receive accurate and comprehensive information on relevant transactions. These requirements provide for:
(1) approved publication arrangements (APAs) to:
(a) improve the quality of trade transparency information published in relation to over the counter trading; and (b) contribute significantly to ensuring such data is published in a way that facilitates its consolidation with data published by trading venues; (2) consolidated tape providers (CTPs) to supply a comprehensive consolidated tape of equity and equity-like financial instruments data from all APAs and trading venues to make it easier for market participants to gain access to a consolidated view of trade transparency information; (3) CTPs to enable a comprehensive consolidated tape for non-equity financial instruments with an extended date for the application of national measures transposing MiFID; and (4) approved reporting mechanisms (ARMs) to provide the service of

FCA 2017/xx transaction reporting on behalf of investment firms. Approach to transposition
9.1.3 G The market data services authorisation and supervision requirements in Title
V of MiFID are implemented in the UK through a combination of:
(1) HM Treasury legislation in the form of:
(a) the DRS Regulations which set out a separate regulatory framework for persons providing one or more data reporting service in the UK; and (b) the MiFI Regulations which set out additional provisions addressing requirements imposed by MiFIR and EU regulations; (2) this chapter; and (3) EU regulations including:
(a) MiFID RTS 1;
(b) MiFID RTS 2;
(c) MiFID RTS 3;
(d) MiFID RTS 13;
(e) MiFID ITS 3;
(f) the MiFID Org Regulation; and
(g) the MiFIR Delegated Regulation.
Structure
9.1.4 G The following table provides an overview of this chapter:
Handbook reference
Topic and specific application
MAR 9.1 Application, introduction, approach and structure MAR 9.2 Authorisation and verification MAR 9.3 Notification and information MAR 9.4 Supervisory regime MAR 9.5 Frequently Asked Questions

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MAR 9
Annex 1D
to MAR
Annex 10D
Forms
9.2 Authorisation and verification
Application form and notification form for members of the management body
9.2.1 D (1) Each of the following must complete the forms in (2):
(a) an applicant for a data reporting service authorisation; (b) a UK MiFID investment firm operating a trading venue seeking verification of its rights to provide a data reporting service under regulation 5(b) and (c) of the DRS Regulations; and (c) a UK RIE operating a trading venue seeking verification of its rights to provide a data reporting service under regulation 5(d) of the DRS Regulations. (2) The forms in (1) are:
(a) the application form at MAR 9 Annex 1D; and (b) the notification form for the list of members of the management body at MAR 9 Annex 2D.
9.2.2 G MAR 9 Annex 1D and MAR 9 Annex 2D are derived from Annex I and
Annex II respectively of MiFID ITS 3.
Variation of authorisation form
9.2.3 D If a data reporting services provider wishes to extend or otherwise vary its
data reporting service authorisation it must complete the variation of authorisation form at MAR 9 Annex 3D.
9.2.4 G MAR 9 Annex 3D requires completion of Annex I of MiFID ITS 3 in the case
of an extension of authorisation and, if relevant, Annex II of MiFID ITS 3 if the members of the management body are different from the existing authorised data reporting services provider. Cancellation of authorisation form
9.2.5 D If a data reporting services provider wishes to cancel all of its data reporting
service authorisation it must complete the cancellation of authorisation form at MAR 9 Annex 4D.

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Provision of the forms in MAR 9 Annexes 1D, 2D, 3D and 4D to the FCA
9.2.6 D A person must provide MAR 9 Annexes 1D, 2D, 3D and 4D together with
supporting documentation to the FCA by:
(1) emailing MiFiDII.Applications@fca.org.uk; or (2) posting to the FCA addressed to:
The Financial Conduct Authority
FAO The Authorisations Support Team
25 The North Colonnade
Canary Wharf
London E14 5HS
9.3 Notification and information
Notification to the FCA of material changes in information provided at the time of authorisation
9.3.1 D A data reporting services provider must promptly complete the material
change in information form at MAR 9 Annex 5D to inform the FCA of any material change to the information provided at the time of its authorisation. Notification to the FCA of change to membership of management body
9.3.2 D A data reporting services provider must promptly complete the notification
form for changes to the membership of the management body form at MAR 9
Annex 6D to inform the FCA of any change to the membership of its
management body before any change to the membership of its management body or when this is impossible within 10 working days after the change.
9.3.3 G MAR 9 Annex 6D is derived from Annex III of MiFID ITS 3.
Notification to the FCA by an APA or a CTP of compliance with connectivity requirements
9.3.4 D As soon as possible and within 2 weeks of being authorised as an APA or a
CTP, an APA or a CTP seeking a connection to the FCA’s market data processor system must:
(1) sign the MIS confidentiality agreement at MAR 9 Annex 10D; and (2) email it to MDP.onboarding@fca.org.uk or post an original signed copy to the FCA addressed to:
The Financial Conduct Authority
FAO The Markets Reporting Team
25 The North Colonnade
Canary Wharf

FCA 2017/xx
London E14 5HS.
9.3.5 G (1) To ensure the security of the FCA’s systems, the FCA requires an
APA or a CTP to sign the MIS confidentiality agreement before receiving the FCA’s Market Interface Specification (MIS). (2) Once the FCA receives the MIS confidentiality agreement from the APA or the CTP, the FCA will provide the APA or the CTP with Market Interface Specification (MIS).
9.3.6 D An APA or a CTP seeking a connection to the FCA’s market data processor
system must complete the form at MAR 9 Annex 7D as soon as possible and no later than 4 weeks following authorisation as an APA or a CTP.
9.3.7 G The FCA expects an APA or a CTP to deal with it in an open and cooperative way in order to establish a technology connection for the provision
of data to the FCA as required by article 22 of MiFIR.
Yearly notifications to the FCA
9.3.8 D A data reporting services provider must complete the yearly notification
form in MAR 9 Annex 8D:
(1) within 3 months of the 12 month anniversary of the commencement of its authorisation; and (2) then every year within 3 months of the same date.
9.3.9 G For example, if a data reporting services provider’s authorisation
commences on 3 January 2018, the data reporting services provider must provide the information in MAR 9 Annex 8D on or before 3 April 2019 and then every year thereafter on or before 3 April of that particular year. Ad hoc notifications to the FCA
9.3.10 D A data reporting services provider must promptly complete the ad hoc
notification form in MAR 9 Annex 9D to notify the FCA in respect of all matters required by MiFID RTS 13.
9.3.11 G Information to be provided in MAR 9 Annex 9D includes information
relating to planned significant changes to a data reporting services provider’s IT system, breaches in physical and electronic security measures and service interruptions or connection disruptions. Provision of the forms in MAR 9 Annexes 5D, 6D, 7D, 8D and 9D to the FCA
9.3.12 D A data reporting services provider must promptly provide the forms in MAR
9 Annexes 5D, 6D, 7D, 8D and 9D and supporting documentation to the FCA:
(1) at MRT@fca.org.uk; or

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(2) by posting it to the FCA, addressed to:
The Financial Conduct Authority
The Markets Reporting Team
25 The North Colonnade
Canary Wharf
London E14 5HS
9.4 Supervisory regime
Overview of supervisory approach
9.4.1 G (1) The FCA expects to have an open, cooperative and constructive
relationship with data reporting services providers to enable it to understand and evaluate data reporting services providers’ activities and their ability to meet the requirements in the DRS Regulations. As
part of that relationship the FCA expects a data reporting services
provider to provide it with information about any proposed restructuring, reorganisation or business expansion which could have a significant impact on the data reporting services provider’s risk profile or resources. (2) The FCA will, when necessary, arrange meetings between the FCA and key individuals of the data reporting services provider for this purpose. (3) The FCA expects the data reporting services provider to take its own steps to assure itself that it will continue to satisfy the data reporting services provider organisational requirements when considering any changes to its business operations. Overview of supervisory tools
9.4.2 G The FCA will use a variety of tools to monitor whether a data reporting
services provider complies with its regulatory requirements. These tools include (but are not limited to):
(1) desk-based reviews;
(2) liaison with other regulators;
(3) meetings with management and other representatives of a data reporting services provider; (4) on-site visits; (5) use of auditors; (6) use of a skilled person;

FCA 2017/xx
(7) reviews and analysis of periodic returns and notifications; (8) transaction monitoring; (9) making recommendations for preventative or remedial action; (10) giving individual guidance; (11) restrictions on permission to carry on a data reporting service; and (12) imposing individual requirements.
9.5 Frequently Asked Questions
9.5.1 G Q. Are there any grandfathering arrangements for ARMs or trade data
monitors operating prior to MiFID?
A. No. Persons wishing to provide a data reporting service must apply to be authorised as a data reporting services provider.
9.5.2 G Q. We are a trading venue operator. Can you please clarify how we can
provide a data reporting service under the derogation from needing authorisation in article 59(2) of MiFID? A. (1) The derogation (or exception) in article 59(2) of MiFID allows Member States to allow a trading venue operator to provide a data reporting service without prior authorisation, if the operator has verified that they comply with Title V of MiFID. (2) The United Kingdom has adopted this derogation in regulation 5(b) to (d) of the DRS Regulations. (3) As a result a trading venue operator must apply for verification of its rights to provide a data reporting service using the form in MAR 9 Annex 1D. (4) The application process for a trading venue operator to become a data reporting services provider is the same as for a person to become a data reporting services provider, except for the requirements for the management body of a market operator addressed in MAR 9.5.3G below. (5) Successful applicants will become data reporting services providers and will be required to comply with the regulatory framework in MAR 9.1.3G. They will be subject to fees charged by the FCA in MAR 9.5.4G.
9.5.3 G Q. We are a market operator. Can we use the same members of our

FCA 2017/xx management body?
A. Yes. Where the members of the management body of the APA, the CTP or the ARM are the same as the members of the management body of the regulated market you will be deemed to have complied with the management body requirement in regulation 13(1)(a) and (b) of the DRS Regulations. You will only be required to complete the full name and personal national identification number or equivalent thereof fields of MAR 9 Annex 2D for each of these members of the management body. For any additional members of the management body of the APA, the CTP or the ARM that are not the same as the members of the management body of the regulated market, you must notify us of these persons by completing all fields of MAR 9 Annex 2D. You must notify us of any change in membership using MAR 9
Annex 6D.
9.5.4 G Q. Where can I find out information about fees to be charged in respect
of data reporting services providers?
A. See FEES 3.2.7R and FEES 4 Annex 11R.
9.5.5 G Q. How do we go about applying to be an ARM?
A. In summary:
(1) You should complete:
(a) all of the questions in the application form at MAR 9
Annex 1D; and
(b) the notification form for the list of members of the management body at MAR 9 Annex 2D. (2) You should sign the MIS confidentiality agreement at MAR 9
Annex 10D.
(3) You should provide the documents referred to in:
(a) (1)(a) and (b) together with supporting documentation to the FCA as set out in MAR 9.2.6D; and (b) (2) to the FCA as set out in MAR 9.3.4D. (4) After receiving the documents referred to in (3) and subject to our review of them, we will provide you with a copy of our Market Interface Specification (MIS). (5) If you consider that you can meet our specifications you should obtain the FCA MDP on-boarding application form at MAR 9 Annex 7D and provide the completed form and any relevant documents to us together with the associated fee in FEES 3.2.7R and FEES 4 Annex 11R. Our consideration of

FCA 2017/xx your application for authorisation as an ARM is dependent on us reviewing a completed FCA MDP on-boarding application form. (6) We may at any time request additional information to proceed with the assessment of the application. (7) During our consideration of your application for authorisation or verification, we will normally invite you to work with us to undertake the appropriate testing required for you to establish connection to us. (8) Having obtained and examined the necessary information we require from you, we will do one of three things in relation to your application for authorisation:
(a) authorise you as an ARM; or
(b) issue a warning notice that we propose to authorise you as an ARM with the imposition of a requirement on your authorisation; or (c) issue a warning notice that we propose to refuse the application for authorisation. (9) If we issue a warning notice, the procedure in DEPP applies. (10) If we approve your application for authorisation or verification, we will confirm your authorised status.
9.5.6 G Q. Does an investment firm need to be authorised as an ARM to send
transaction reports to the FCA?
A. No. If you are a MiFID investment firm that wishes to send transaction reports to us to satisfy your own transaction reporting obligations under MiFIR, you do not need to become authorised as an ARM. You are permitted to connect directly to us although there will be a requirement to sign a MIS confidentiality agreement with us, to satisfy connectivity requirements and to undertake testing associated with connecting to our systems. For the associated costs please see FEES 3.2.7R for relevant on-boarding costs. If you want to connect to us to send reports on behalf of other investment firms then you must become authorised as an ARM.
9.5.7 G Q. Where can I find a list of data reporting services providers?
A. Article 59(3) of MiFID requires ESMA to establish a list of all data reporting services providers. Further, regulation 6 of the DRS Regulations requires the FCA to maintain a register of data reporting services providers.

FCA 2017/xx
9.5.8 G Q. I am a data reporting services provider and am experiencing
technical issues. What do I do?
A. In the first instance please contact Market Data Processor support at MDP.technicalOnboarding@soprasteria.com and copy DRSP supervision at MRT@fca.org.uk with a succinct summary of the technical issue(s) encountered.
9.5.9 G Q. Can any trading venue report transactions for the purposes of article
26 of MiFIR to the FCA using an ARM?
A. Yes. The ability of a trading venue to submit data to an ARM is consistent with the definition of an ARM which enables a trading venue to submit information, on its own behalf, to an ARM. It is also consistent with paragraph 2 of article 9 [Security] of MiFID RTS 13, which enables a third party to submit information to an ARM on behalf of others. More generally, it supports the purpose underlying MiFIR and MiFID of facilitating the detection of cases of market abuse.
9.5.10 G Q. Can a group of investment firms aggregate their reporting via an
internal hub?
A. Yes. A group of investment firms may use a hub to assist with aggregating transaction reporting data for each legal entity that is an investment firm in the group for the purposes of article 26 of MiFIR provided that the hub is either an ARM or the hub uses an ARM to report the transaction data to the FCA. Paragraph 2 of article 9 [Security] of MiFID RTS 13 confirms that an investment firm (‘reporting firm’) may use a third party (‘submitting firm’) to submit information to an ARM.
9.5.11 G Q. Which form should I use if I wish to cancel some, but not all, of my
data reporting service?
A. You should use the form at MAR 9 Annex 3D. If you expect the wind-down (run-off) of the service that you wish to cancel to take longer than six months you should discuss this with your usual supervisory contact.
9.5.12 G Q. I intend to apply to be authorised to provide the data reporting
service of an APA. May I establish connectivity requirements while my application for authorisation is being considered? A. Yes. The MIS confidentiality agreement is available on our website at www.fca.org.uk/markets/market-data-regimes/market-data-reportingmdp together with instructions on how to obtain the Market Interface Specification (MIS) for connectivity. After MAR 9 insert the following new Annexes. Each Annex consists of a link to a form.

FCA 2017/xx
9 Annex 1D Application form to provide the service of ARM and/or APA and/or CTP https://www.fca.org.uk/publication/forms/mifid-data-reporting-services-form.docx 9 Annex 2D Notification form for list of members of a management body https://www.fca.org.uk/publication/forms/mifid-management-body-members-form.docx 9 Annex 3D Variation of Authorisation of a Data Reporting Services Provider (DRSP) https://www.fca.org.uk/publication/forms/drsp-variation-authorisation-form.doc 9 Annex 4D Cancellation of Authorisation of a Data Reporting Services Provider (DRSP) https://www.fca.org.uk/publication/forms/drsp-cancellation-form.doc 9 Annex 5D Material Change in information for a Data Reporting Services Provider (DRSP) https://www.fca.org.uk/publication/forms/drsp-material-change-notification.doc 9 Annex 6D Notification form for changes to the membership of the management body https://www.fca.org.uk/publication/forms/drsp-changes-to-management-body-members.doc 9 Annex 7D FCA MDP on-boarding application form https://www.fca.org.uk/publication/forms/mdp-on-boarding-application-form.doc 9 Annex 8D Yearly Notification Form for a Data Reporting Service Provider (DRSP) https://www.fca.org.uk/publication/forms/drsp-annual-notification.doc

FCA 2017/xx
9 Annex 9D Data Reporting Services Provider (DRSP) Ad hoc notification https://www.fca.org.uk/publication/forms/drsp-ad-hoc-change-notification.doc 9 Annex 10D MIS confidentiality agreement https://www.fca.org.uk/publication/forms/mis-confidentiality-agreement.docx After MAR 9 insert the following new chapter. All the text is new and is not underlined. 10 Commodity derivative position limits and controls, and position reporting
10.1 Application
Introduction
10.1.1 G (1) The purpose of this chapter is to implement articles 57 and 58 of
MiFID by setting out the necessary directions, rules and guidance. (2) In particular, this chapter sets out the FCA’s requirements in respect of:
(a) articles 57(1) and 57(6) of MiFID, which require competent authorities or central competent authorities to establish limits, on the basis of a methodology determined by ESMA, on the size of a net position which a person can hold, together with those held on the person’s behalf at an aggregate group level, at all times, in commodity derivatives traded on trading venues and economically equivalent OTC contracts to those commodity derivatives; [Note: articles 3 and 4 of MiFID RTS 21] (b) article 57(8) of MiFID, which requires MiFID investment firms and market operators operating a trading venue which trades commodity derivatives to apply position management controls; (c) article 58(1) of MiFID, which requires MiFID investment firms and market operators operating a trading venue which trades commodity derivatives or emission allowances to provide the competent authority with reports in respect of such positions held; and (d) article 58(2) of MiFID, which requires investment firms trading in commodity derivatives or emission allowances outside a trading venue to provide the competent authority or central competent authority with reports containing a complete

FCA 2017/xx breakdown of their positions held through such contracts traded on a trading venue and economically equivalent OTC contracts, as well as of those of their clients and the clients of those clients until the end client is reached. (3) The position limit requirements apply to both authorised persons and unauthorised persons. As such, the MiFI Regulations provide for a separate regulatory framework in relation to such persons. This framework is set out in:
(a) Part 3 of the MiFI Regulations (‘Position limits in commodity derivatives’); and (b) Part 6 of the MiFI Regulations (‘Administration and enforcement of Part 3, 4 and 5’), which provides for the administration and enforcement of position limits established by the FCA, and of the reporting of positions in commodity derivatives, emission allowances and economically equivalent OTC contracts. This chapter complements and adds to the regulatory framework in the MiFI Regulations by establishing the applicable position limits. Scope and territoriality
10.1.2 G The scope of this chapter is as follows:
(1) In respect of position limit requirements in MAR 10.2, a commodity derivative position limit established by the FCA in accordance with MAR 10.2.2D(1) applies regardless of the location of the person at the time of entering into the position and the location of execution. [Note: article 57(14)(a) of MiFID] (2) In respect of position management controls requirements:
(a) the requirements contained or referred to in MAR 10.3 apply to persons operating a trading venue which trades commodity derivatives in respect of which the FCA is the Home State competent authority; and (b) in the case of a UK branch of a third country investment firm operating an MTF or OTF, MAR 10.3 applies in the same way as it does to a UK firm operating a multilateral trading facility or an OTF. (3) In respect of position reporting requirements:
(a) the position reporting requirements in MAR 10.4 apply to:
(i) a UK regulated market; and
(ii) a UK firm or a UK branch of a third country investment

FCA 2017/xx firm operating a multilateral trading facility or an OTF, when operating a trading venue which trades commodity derivatives or emission allowances; and (b) the position reporting requirements in MAR 10.4 apply to an investment firm regardless of its location at the time of entering into the position and the location of execution. Structure
10.1.3 G This chapter is structured as follows:
(1) MAR 10.1 sets out an introduction to MAR 10, a description of the application of MAR 10 to different categories of person, an explanation of the approach taken to the UK transposition of articles 57 and 58 of MiFID, the scope and territoriality of this chapter, and the structure of this chapter. (2) MAR 10.2 sets out the position limit requirements. (3) MAR 10.3 sets out the position management controls requirements. (4) MAR 10.4 sets out the position reporting requirements. (5) MAR 10.5 sets out other reporting, notification and information requirements.
10.2 Position limit requirements
Establishing, applying and resetting position limits
10.2.1 G (1) The following provisions of the MiFI Regulations regulate the
establishment, application and resetting of position limits:
(a) Regulation 15(1) imposes an obligation on the FCA to establish position limits in accordance with ESMA’s methodology; (b) Regulation 15(2) imposes an obligation on the FCA to establish position limits on the basis of all positions held by a person in the contract to which the limit relates and those held on the person’s behalf at an aggregate group level; (c) Regulation 15(3) imposes obligations on the FCA in respect of the position limits it establishes, for example that the position limits should be published in a manner which the FCA considers appropriate; (d) Regulation 15(4) imposes an obligation on the FCA to review position limits it has established in the presence of certain

FCA 2017/xx factors;
(e) Regulation 15(5) empowers the FCA to reset a position limit following its review if it believes that the limit should be reset; (f) Regulation 15(6) imposes an obligation on the FCA, where it receives an ESMA opinion stating that the FCA has established a position limit incompatible with ESMA’s methodology, to modify the position limit in accordance with ESMA’s opinion or to notify ESMA as to why amendment to the limit is considered to be unnecessary; (g) Regulation 15(7) prohibits the FCA from establishing position limits which are more restrictive than permitted under ESMA’s methodology, unless in exceptional cases where more restrictive position limits are objectively justified and proportionate; (h) Regulation 15(8) imposes obligations on the FCA where it establishes position limits which are more restrictive than permitted under ESMA’s methodology in accordance with Regulation 15(7) of the MiFI Regulations. The obligations are that the FCA must publish that position limit on its website, not apply that position limit for more than six months from the date of publication unless further subsequent six-month application periods for that limit are objectively justified, and must notify ESMA of the position limit and the justification for establishing it; (i) Regulation 15(9) imposes an obligation on the FCA to publish a notice on its website explaining the reasons for its decision when, under Regulation 15(6) and Regulation 15(8) of the MiFI Regulations, it does not modify a position limit following an ESMA opinion; and (j) Regulation 17 empowers the FCA to require a person to provide information on, or concerning, a position the person holds, or trades the person has undertaken, or intends to undertake, in a contract to which a position limit relates. (2) MiFID RTS 21 provides a methodology for the calculation of position limits on commodity derivatives, and rules for the calculation of the net position held by a person in a commodity derivative. (3) MiFID RTS 21 provides that the FCA can establish different position limits for different times within the spot month period or other months’ period of a commodity derivative, and for the spot month period, those position limits shall decrease towards the maturity of the commodity derivative, and shall take into account the position management controls of trading venues. [Note: article 57 of MiFID]

FCA 2017/xx
Application of position limits
10.2.2 D (1) A person must comply at all times with commodity derivative position
limits established by the FCA, published at www.fca.org.uk.
(2) A direction made under (1) applies where a commodity derivative is traded on a trading venue in the United Kingdom, provided that there is not a central competent authority established in an EEA State other than the United Kingdom. (3) Position limits established under (1) shall apply to the positions held by a person together with those held on its behalf at an aggregate group level. (4) Position limits established under (1) shall apply regardless of the location of the person at the time of entering into the position (subject to the non-financial entity exemption in regulation 14(5) of the MiFI Regulations). [Note: articles 57(1) and 57(14) of MiFID; and MiFID RTS 21 in respect of ESMA’s methodology for competent authorities to calculate position limits] Non-financial entity exemption
10.2.3 G (1) Regulation 14(5) of the MiFI Regulations regulates the position limit
exemption applicable to positions in a commodity derivative held by or on behalf of a non-financial entity which are objectively measurable as reducing risks directly relating to the commercial activity of that nonfinancial entity. Regulation 14(5) imposes an obligation on the FCA to disregard such positions, when calculating the position held by such entities in respect of a commodity derivative to which a position limit applies. (2) Regulation 18 of the MiFI Regulations enables the FCA to receive applications from non-financial entities for the purposes of obtaining an exemption from the position limits which it sets and in such form as the FCA may direct. (3) MiFID RTS 21 stipulates detail on positions qualifying as reducing risks directly related to commercial activities, and the application for the exemption from position limits. (4) MiFID RTS 21 clarifies that a non-financial entity shall notify the FCA if there is a significant change to the nature or value of that nonfinancial entity’s commercial activities, or its trading activities in commodity derivatives. The obligation arises where the change is relevant to the description of the nature and value of the non-financial entity’s trading and positions held in commodity derivatives and their economically equivalent OTC contracts in a position limit exemption application it has already submitted. In this case, a non-financial entity must submit a new application if it intends to continue to make use of

FCA 2017/xx the exemption.
[Note: article 57(1) of MiFID]
Non-financial entity exemption application
10.2.4 D A non-financial entity must complete the application form in MAR 10
Annex 1D for approval to be exempt from compliance with position limits
established by the FCA in accordance with MAR 10.2.2D(1).
10.2.5 G Where a position limit is established by a competent authority or central
competent authority other than the FCA, a non-financial entity should submit its application for exemption, in relation to the position limit, to that competent authority or central competent authority in the manner it specifies. [Note: article 8 of MiFID RTS 21]
10.3 Position management controls
Application
10.3.1 G The application of this section is set out in the following table:
Type of firm Applicable provisions a UK market operator operating a trading venue MAR 10.3.2G and MAR 10.3.4G a UK firm operating a multilateral trading facility or an OTF and a UK branch of a third country investment firm operating a multilateral trading facility or an OTF MAR 10.3.3R to MAR 10.3.5G Position management controls applicable to UK market operators operating a trading venue
10.3.2 G A UK market operator operating a trading venue which trades commodity
derivatives must apply position management controls on that trading venue, in accordance with paragraph 7BA of the Schedule to the Recognition Requirements Regulations, as inserted by the MiFI Regulations. [Note: article 57(8) to 57(10) of MiFID] Position management controls applicable to UK firms and UK branches of third country investment firms operating an MTF or OTF
10.3.3 R (1) This rule applies to a UK firm operating a multilateral trading facility
or an OTF and a UK branch of a third country investment firm

FCA 2017/xx operating a multilateral trading facility or an OTF. (2) A firm must apply position management controls which enable an MTF or OTF at least to:
(a) monitor the open interest positions of persons; (b) access information, including all relevant documentation, from persons about:
(i) the size and purpose of a position or exposure entered into; (ii) any beneficial or underlying owners; (iii) any concert arrangements; and (iv) any related assets or liabilities in the underlying market; (c) require a person to terminate or reduce a position on a temporary or permanent basis and unilaterally to take appropriate action to ensure the termination or reduction if the person does not comply; and (d) require a person to provide liquidity back into the market at an agreed price and volume on a temporary basis with the express intent of mitigating the effects of a large and dominant position. (3) The position management controls in paragraph (2) must take account of the nature and composition of market participants and of the use they make of the contracts admitted to trading and must:
(a) be transparent;
(b) be non-discriminatory; and
(c) specify how the controls apply to persons.
(4) A firm must inform the FCA of the details of the position management controls in relation to each MTF or OTF it operates which trades commodity derivatives. [Note: article 57(8) to 57(10) of MiFID] Supervision of position management controls
10.3.4 G An operator of a trading venue referred to in MAR 10.3.1G may include
provisions in its rulebook which impose appropriate obligations on its members or participants as part of compliance with its position management controls obligations. Position management controls: Procedure for informing the FCA

FCA 2017/xx
10.3.5 G A firm must comply with the obligation in MAR 10.3.3R(4) by completing
the form available at www.fca.org.uk.
10.4 Position reporting
Application
10.4.1 G The application of this section is set out in the following table:
Type of firm Applicable provisions
UK regulated market MAR 10.4.2G
UK firm operating a multilateral trading facility or an OTF and a UK branch of a third country investment firm operating a multilateral trading facility or an OTF MAR 10.4.3R to MAR 10.4.6G UK MiFID investment firm MAR 10.4.7D to MAR 10.4.9D UK branch of third country investment firm when not operating a multilateral trading facility or an OTF MAR 10.4.7D to MAR 10.4.9D Member, participant or a client of a UK trading venue MAR 10.4.7D EEA MiFID investment firm who is a member, participant or a client of a UK trading venue MAR 10.4.10D Position reporting by UK regulated markets
10.4.2 G A UK regulated market which trades commodity derivatives or emission
allowances must provide position reports in accordance with paragraph 7BB of the Schedule to the Recognition Requirements Regulations, as inserted by the MiFI Regulations. [Note: article 58(1) of MiFID] Position reporting by UK firms and UK branches of third country investment firms operating an MTF or OTF: Reports
10.4.3 R (1) This rule applies to a UK firm operating a multilateral trading facility
or an OTF and a UK branch of a third country investment firm operating a multilateral trading facility or an OTF.

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(2) A firm must make public and provide to the FCA and ESMA a weekly report with the aggregate positions held by the different categories of persons for the different commodity derivatives or emission allowances traded on the trading venue, where those instruments meet the criteria of article 83 of the MiFID Org Regulation, specifying:
(a) the number of long and short positions held by such categories; (b) changes in those positions since the previous report; (c) the percentage of the total open interest represented by each category; and (d) the number of persons holding a position in each category, as specified in MAR 10.4.4R. (3) The firm must provide the FCA with a complete breakdown of the positions held by all persons, including the members or participants and clients, as well as those of their clients until the end client is reached, on the trading venue on a daily basis. (4) For the weekly report mentioned in (2) above, the firm must differentiate between:
(a) positions which in an objectively measurable way reduce risks directly relating to commercial activities; and (b) other positions. [Note: article 58(1) of MiFID ITS 4 on position reporting and MiFID ITS 5 on the format and timing of weekly position reports to ESMA] Position reporting by UK firms and UK branches of third country investment firms operating an MTF or OTF: classification of persons holding positions in commodity derivatives or emission allowances
10.4.4 R A firm must classify persons holding positions in commodity derivatives or
emission allowances according to the nature of their main business, taking account of any applicable authorisation or registration, as:
(1) investment firms or credit institutions; or (2) investment funds, either as a UCITS, or an AIF or an AIFM; or (3) other financial institutions, including:
(a) insurance undertakings and reinsurance undertakings as defined in the Solvency II Directive; and (b) institutions for occupational retirement provision as defined in Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of

FCA 2017/xx institutions for occupational retirement; or (4) commercial undertakings; or (5) in the case of emission allowances, operators with compliance obligations under the Emission Allowance Trading Directive. [Note: article 58(4) of MiFID] Position reporting by UK firms and UK branches of a third country investment firms operating an MTF or OTF: Procedure for reporting to the FCA
10.4.5 D (1) This direction applies to:
(a) a UK firm operating a multilateral trading facility or an OTF; and (b) a UK branch of a third country investment firm operating a multilateral trading facility or an OTF. (2) A firm shall report to the FCA:
(a) (where it meets the minimum threshold as specified in article 83 of the MiFID Org Regulation:
http://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016- 2398-EN-F1-1.PDF) the weekly report referred to in MAR 10.4.3R(2), by using the form set out in Annex I of MiFID ITS 4, and publish it on its website and provide the report to ESMA; and (b) in respect of the daily report referred to in MAR 10.4.3R(3):
(i) by using the form set out in Annex II of MiFID ITS 4 available at https://www.fca.org.uk/markets/mifidii/commodity-derivatives; and (ii) in each case, the report must be provided to the FCA by 21:00 GMT the following business day. [Note: MiFID ITS 4 on position reporting] Position reporting by UK firms and UK branches of a third country investment firms operating an MTF or OTF: Duplication of reporting
10.4.6 G For the purposes of making the weekly report referred to under MAR
10.4.3R(2), the FCA will accept an email containing a link to the report, as published on the firm’s website. Emails should be sent to the FCA at COT_reports@fca.org.uk. This guidance does not affect the separate obligation for a firm to make the weekly report to ESMA. Position reporting by members, participants or clients of UK trading venues:
trading venue participant reporting

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10.4.7 D (1) This direction applies to a member, participant or a client of a trading
venue.
(2) A person in (1) must report to the relevant operator of a trading venue the details of their own positions held through contracts traded on that venue, at least on a daily basis, as well as those of their clients and the clients of those clients, until the end client is reached. (3) Paragraph (2) above does not apply to a member, participant or a client of a trading venue that is an EEA person. [Note: article 58(3) of MiFID] UK MiFID investment firms and UK branches of third country investment firms:
OTC reporting to the FCA
10.4.8 D (1) This direction applies to:
(a) a UK MiFID investment firm; and
(b) a UK branch of a third country investment firm.
(2) An investment firm in (1) trading in a commodity derivative or emission allowance outside a trading venue must, where the FCA is the competent authority of the trading venue where that commodity derivative or emission allowance is traded, provide the FCA with a report containing a complete breakdown of:
(a) their positions taken in those commodity derivatives or emission allowances traded on a trading venue; (b) economically equivalent OTC contracts; and (c) the positions of their clients and the clients of those clients until the end client is reached, in accordance with article 26 of MiFIR. (3) The report in (2) must be submitted to the FCA, for each business day, by 21:00 GMT the following business day, using the form set out in
Annex II of MiFID ITS 4 available at
https://www.fca.org.uk/markets/mifid-ii/commodity-derivatives. (4) The obligation in (2) does not apply where there is a central competent authority for the commodity derivative other than the FCA. [Note: 58(2) of MiFID, and MiFID ITS 4 on position reporting] UK MiFID investment firms and UK branches of third country investment firms:
OTC reporting to EEA competent authorities other than the FCA
10.4.9 D (1) This direction applies to:

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(a) a UK MiFID investment firm; and
(b) a UK branch of a third country investment firm.
(2) An investment firm in (1) trading in a commodity derivative or emission allowance outside a trading venue must, where an EEA competent authority other than the FCA is the competent authority of the trading venue where that commodity derivative or emission allowance is traded, or the central competent authority for the purposes of that commodity derivative, provide that EEA competent authority with a report containing a complete breakdown of:
(a) their positions taken in those commodity derivatives or emission allowances traded on a trading venue; (b) economically equivalent OTC contracts; and (c) the positions of their clients and the clients of those clients until the end client is reached, in accordance with article 26 of MiFIR. (3) The report in (2) must be submitted to the relevant EEA competent authority, for each business day, using the form set out in Annex II of MiFID ITS 4, by the time specified by that EEA competent authority. (4) The obligation in (2) does not apply where the FCA is the central competent authority for that commodity derivative. [Note: 58(2) of MiFID, and MiFID ITS 4 on position reporting] EEA MiFID investment firms who are members, participants or clients of UK trading venues: trading venue participant reporting and OTC reporting to the FCA
10.4.10 D (1) This direction applies to an EEA MiFID investment firm which is a
member, participant or a client of a UK trading venue.
(2) MAR 10.4.7D applies to an EEA MiFID investment firm under (1), as if it were a UK MiFID investment firm. (3) MAR 10.4.8D applies to an EEA MiFID investment firm under (1), as if it were a UK MiFID investment firm, where the EEA MiFID investment firm trades in a commodity derivative or emission allowance outside a trading venue, and the FCA is the competent authority of the trading venue where that commodity derivative or emission allowance is traded, or the central competent authority for the purposes of that commodity derivative. (4) Paragraphs (2) and (3) above only apply where the EEA MiFID investment firm is not subject to a corresponding rule or other requirement imposed by its Home State competent authority.

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10.5 Other reporting, notifications and information requirements
Information requirement
10.5.1 G Regulation 17 of the MiFI Regulations provides the FCA with the power to:
(1) require a person to provide information including all relevant documentation, on, or concerning:
(a) a position the person holds in a contract to which a position limit relates; and (b) trades the person has undertaken, or intends to undertake, in a contract to which a position limit relates; and (2) require an operator of a trading venue to provide information including all relevant documentation on, or concerning, trades a person has undertaken, or intends to undertake in a contract to which a position limit relates. [Note: article 69(2)(j) of MiFID] Power to intervene
10.5.2 G The following provisions of the MiFI Regulations regulate the power of the
FCA to intervene in respect of position limits:
(1) Regulation 19 provides that the FCA may limit the ability of any person to enter into a contract for a commodity derivative, restrict the size of positions a person may hold in such a contract, or require any person to reduce the size of a position held, notwithstanding that the restriction or reduction would be below the position limit established by the FCA or another competent authority in accordance with article 57 of MiFID to which the contract relates; and (2) Regulation 33 provides that the FCA must maintain arrangements designed to enable it to determine whether persons on whom the FCA imposes position limit requirements are complying with those requirements, and also maintain arrangements for enforcing the position limits requirements on such persons. [Note: article 69(2)(o) and 69(2)(p) of MiFID] Reporting requirements
10.5.3 G The following provisions of the MiFI Regulations regulate the power of the
FCA to impose reporting requirements in respect of positions taken in commodity derivatives and emission allowances:

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(1) Regulation 36 provides that a person must provide the FCA with information in respect of its compliance or non-compliance with position limit requirements, as the FCA may direct; and (2) Regulation 33 provides that the FCA must maintain arrangements designed to enable it to determine whether persons on whom the FCA imposes position limit requirements are complying with those requirements, and also maintain arrangements for enforcing the position limits requirements on such persons. [Note: article 69(2)(j) of MiFID] Breaches of MAR 10 by unauthorised persons
10.5.4 D (1) An unauthorised person to which this chapter applies must notify the
FCA of:
(a) a breach of a direction in this chapter; (b) a breach of a directly applicable provision imposed by MiFIR or any EU regulation adopted under MiFID or MiFIR; and (c) a breach of any requirement imposed by or under the MiFI Regulations which relates to this chapter. (2) Notifications under (1) must be made immediately if the person becomes aware, or has information which reasonably suggests, that any of the breaches referred to in (1) have occurred, may have occurred or may occur in the foreseeable future. Notifications by unauthorised persons: non-financial entity exemption applications
10.5.5 G SUP 15.3.13G and SUP 15.3.14G apply to notifications of an application by
an unauthorised person for the non-financial entity exemption under regulation 6(4) of the MiFI Regulation as if the person is a firm to which SUP 15.3.11R applies. Breaches of MAR 10 by authorised persons
10.5.6 G Firms should refer to SUP 15.3 (General notification requirements)
generally, and in particular SUP 15.3.11R, in respect of the following:
(1) a breach of a rule or direction in this chapter; (2) a breach of a directly applicable provision imposed by MiFIR or any EU regulation adopted under MiFID or MiFIR; and (3) a breach of any requirement imposed by or under the MiFI Regulations which relates to this chapter. Territoriality

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10.5.7 G The powers of the FCA referred to in MAR 10.5.1G to MAR 10.5.3G can be
applied to a person regardless of whether the person is situated or operating in the UK or abroad, where the relevant position relates to a commodity derivative or emission allowance of which the FCA is the competent authority or central competent authority, or economically equivalent OTC contracts. Decision and appeal procedures
10.5.8 G The power of the FCA referred to in MAR 10.5.2G is exercisable subject to
the decision-making procedures in DEPP 2 Annex 2G (Supervisory notices) (and other provisions in DEPP, as appropriate). 10 Annex 1D Application form for a non-financial entity for an exemption from compliance with position limits [form to be inserted by the FCA] Amend the following as shown. Sch 1 Record Keeping keeping requirements 1.1G Handbook reference Subject of record Contents of record When record must be made Retention period MAR 7A.3.8R Algorithmic and high-frequency algorithmic trading Records necessary to meet MAR 7A.3.7R, and high-frequency algorithmic trading records and quotes On initiation of algorithmic and high-frequency algorithmic trading strategies 5 years, or as otherwise provided for high-frequency algorithmic trading records and quotes in MiFID RTS 6 MAR 7A.4.6R Direct electronic access providers’ systems and controls Records necessary to meet MAR 7A.4.2R and MAR 7A.4.5R On initiation of direct electronic access provision 5 years … … … … …

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Sch 2 Notification requirements
…
Sch 2.2G Notification requirements
Handbook reference
Matter to be notified
Contents of
Notification
Trigger event Time allowed
MAR
5.3A.3R(4)
Market making agreements
Content of market making agreements
Upon formation of a binding written agreement Without delay MAR 5.3A.8R Trading halts on material markets Information that trading is halted in a financial instrument Upon trading halt Without delay MAR 5.6.1R(1) Non-compliant, disorderly or abusive trading Information of the occurrence of significant breaches of rules, disorderly trading, system disruptions, or conduct that may involve market abuse Upon occurrence of the breach, conditions or conduct Without delay MAR 5.6A.1R(3) Suspension and removal of financial instruments Information of the suspension or removal of a financial instrument and any related or referenced derivative Upon suspension or removal Without delay MAR 5A.5.3R(4) Market making agreements Content of market making agreements Upon formation of a binding written agreement Without delay MAR 5A.5.8R Trading halts on material markets Information that trading is halted in a financial instrument Upon trading halt Without delay MAR 5A.8.1R(1) Non-compliant, disorderly or abusive trading Information of the occurrence of significant breaches of rules, disorderly trading, system disruptions, or conduct that may involve market abuse Upon occurrence of the breach, conditions or conduct Without delay MAR 5A.9.1R(3) Suspension and removal of financial Information of the suspension or Upon suspension or removal Without delay

FCA 2017/xx instruments removal of a financial instrument and any related or referenced derivative MAR 6.4.1R Systematic internaliser status Information of gaining or ceasing systematic internaliser status Upon becoming or ceasing to be a systematic internaliser Without delay MAR 7A.3.6R Engaging in algorithmic trading Information that a member of a trading venue is engaging in algorithmic trading Upon engagement in algorithmic trading Without delay MAR 7A.4.4R Provision of DEA services Information that a firm is providing DEA services Upon engagement in DEA provision Without delay … … … … …

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Annex M
Amendments to the Supervision Manual (SUP) In this Annex, underlining indicates new text and striking through indicates deleted text. 3 Auditors
3.1 Application
…
3.1.2 R Applicable sections (see SUP 3.1.1R)
(1) Category of firm (2) Sections applicable to the firm (3) Sections applicable to its auditor … Note 3B = UK MiFID investment firms include exempt CAD firms. An exempt CAD firm that has opted into MiFID can benefit from the audit exemption for small companies in the Companies Act legislation if it meets the relevant criteria in that legislation and fulfils the conditions of regulation 4C(3) 4(8) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2007 MiFI Regulations. If a firm does so benefit then SUP 3 will not apply to it. For further details about exempt CAD firms, see PERG 13, Q58. … … 10A FCA Approved Persons … 10A.7 FCA required functions … Compliance oversight function (CF10) 10A.7.8 R The compliance oversight function is the function of acting in the capacity of:
(1) a director or senior manager who is allocated the function set out in :
(a) SYSC 3.2.8R ,; or
(b) SYSC 6.1.4R(2) ; or

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(c) article 22(3) of the MiFID Org Regulation; or (d) article 22(3) of the MiFID Org Regulation (as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2- AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R); or (e) SYSC 6.1.4CR; or … … 10A.8 Systems and controls functions Systems and controls function (CF28) 10A.8.1 R The systems and controls function is the function of acting in the capacity of an employee of the firm with responsibility for reporting to the governing body of a firm, or the audit committee (or its equivalent) in relation to:
(1) its financial affairs;
(2) setting and controlling its risk exposure (see SYSC 3.2.10G and , SYSC 7.1.6R, article 23(2) of the MiFID Org Regulation and article 23(2) of the MiFID Org Regulation (as applied in accordance with SYSC 1
Annex 1 2.8AR, SYSC 1 Annex 1 3.2-AR, SYSC 1 Annex 1 3.2-BR,
SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R)); and (3) adherence to internal systems and controls, procedures and policies (see SYSC 3.2.16G and , SYSC 6.2, article 24 of the MiFID Org Regulation and article 24 of the MiFID Org Regulation (as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2-AR, SYSC 1 Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R)). … 10C FCA senior management regime for approved persons in relevant authorised persons … 10C.6 FCA-required functions Compliance oversight function (SMF16) 10C.6.1 R The compliance oversight function is the function of acting in the capacity of a director or senior manager who is allocated the function in:
(1) SYSC 6.1.4R(2); or

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(2) article 22(3) of the MiFID Org Regulation; or (3) article 22(3) of the MiFID Org Regulation (as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2-AR, SYSC 1
Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R).
…
13 Exercise of passport rights by UK firms …
13.1.6 G The chapter also explains how a UK firm which has already established a
branch in, or is providing cross border services into, another EEA State, may change the details of its branch or of the cross border services it is providing:
for example, where a UK firm wishes to establish additional branches in an EEA State in which it has already established a branch where this would result in a change to the details provided previously. Such changes are governed by the EEA Passport Rights Regulations and, where MiFID applies, MiFID RTS 3A and MiFID ITS 4A. …
13.3 Establishing a branch in another EEA State
What constitutes a branch
13.3.1 G (1) Guidance on what constitutes a branch is given in SUP App 3. Note
that if a UK MiFID investment firm is seeking to use a tied agent established in another EEA State, the rules in SUP 13 will apply as if that firm were seeking to establish a branch in that EEA State unless the firm has already established a branch in that EEA State (paragraph 20A of Schedule 3 to the Act) (2) (a) Where a UK MiFID investment firm is seeking to use a tied agent established in another EEA State in which a branch is already established, the tied agent will be assimilated into the branch. (b) If a UK MiFID investment firm is seeking to use a tied agent established in another EEA State in which no branch is already established, the rules in SUP 13 will apply as if that firm were seeking to establish a branch in that EEA State (paragraph 20A of Schedule 3 to the Act). (c) In any event, the appointment of a tied agent established in another EEA State leads to the application of conduct requirements to the tied agent’s business, as if it were a branch of a UK MiFID investment firm.

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(d) See SUP 13.3.9G for details of the MiFID branch forms.
[Note: article 35(2) of MiFID]
…
MiFID branch forms
13.3.9 G (1) (a) A UK MiFID investment firm wishing to use a tied agent
established in another EEA State is required to complete the form in Annex VII of MiFID ITS 4A and send it to the FCA. [Note: article 14(1) of MiFID ITS 4A] (b) A UK MiFID investment firm which intends to establish a branch in another EEA State is required to complete the form in
Annex VI of MiFID ITS 4A and send it to the FCA.
[Note: article 13(1) of MiFID ITS 4A]
(c) A UK MiFID investment firm that intends to establish a branch which in turn intends to use tied agents is required to complete the forms in Annex VI and Annex VII of MiFID ITS 4A and send them to the FCA. [Note: article 13(2) of MiFID ITS 4A] (2) (a) Each of the forms in MiFID ITS 4A referred to in SUP 13.3.9G(1)(a) to (c) is replicated in SUP 13 Annex 1AR. (b) These versions should be used for the purposes of notifications to the FCA. (c) The forms should be submitted in accordance with SUP 13.5.3R.
13.4 Providing cross border services into another EEA State
…
The conditions for providing cross border services into another EEA State … 13.4.2D G (1) A MiFID investment firm that wishes to obtain a passport for the activity of operating an MTF multilateral trading facility or operating an organised trading facility should follow the procedures described in this chapter. (2) A UK market operator that operates a recognised investment

FCA 2017/xx exchange, a recognised auction platform (pursuant to the RAP regulations, the definition of regulated market in the Act is read for these purposes as including a recognised auction platform) or, an MTF or an OTF and wishes to provide cross border services into another EEA State should follow the procedure described in REC 4.2B. … MiFID services forms
13.4.8 G (1) A UK MiFID investment firm is required to submit an investment
services and activities passport notification to the FCA by completing the form in Annex I of MiFID ITS 4A. The firm should complete a separate form for each EEA State it wishes to provide services into. [Note: article 4(1) of MiFID ITS 4A] (2) A UK MiFID investment firm wishing to provide investment services or activities through a tied agent established in the UK is required to send an investment services and activities passport notification to the FCA by completing the parts of the form in Annex I of MiFID ITS 4A that are relevant to a tied agent. The firm should complete a separate form for each EEA State into which it wishes to provide services through a tied agent. [Note: article 4(3) of MiFID ITS 4A] (3) A UK MiFID investment firm operating a multilateral trading facility or operating an organised trading facility that intends to provide appropriate arrangements to facilitate access to and trading on those systems by remote users, members or participants in another EEA State, is required to send the details of the Host State in which it intends to provide such arrangements to the FCA by completing the form in Annex IV of MiFID ITS 4A. If the firm is notifying in respect of more than one MTF or OTF, it should complete a separate form for each MTF or OTF. [Note: article 9 of MiFID ITS 4A] (4) (a) Each of the forms in MiFID ITS 4A referred to in SUP 13.4.8G(1) to (3) is replicated in SUP 13 Annex 2R. (b) These versions should be used for the purposes of notifications to the FCA. (c) The forms should be submitted in accordance with SUP 13.5.3R.

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13.5 Notices of intention
Specified contents: notice of intention to establish a branch
13.5.1 R A UK firm, other than a CRD credit institution, wishing to establish a
branch in a particular EEA State for the first time under an EEA right, other than under the auction regulation, must submit a notice of intention in the form set out in:
(1) SUP 13 Annex 1R; or
(2) if the firm is a UK MiFID investment firm, SUP 13 Annex 1AR. … Method of submission of notices
13.5.3 R (1) A UK firm, other than a credit union, must submit any notice under
SUP 13.5.1R(1), SUP 13.5.1AR or SUP 13.5.2R online at www.fca.org.uk using the online notification and application system. … …
13.6 Changes to branches
13.6.1 G (1) Where a UK firm is exercising an EEA right, other than under the
Insurance Mediation Directive (see SUP 13.6.9AG) or the CRD, and has established a branch in another EEA State, any changes to the details of the branch are governed by the EEA Passport Rights Regulations. (2) References to regulations in this section are to the EEA Passport Rights Regulations. (3) (a) A UK firm which is not an authorised person should note that, under regulation 18, contravention of the prohibition imposed by regulation 11(1), 13(1) or 15(1) is an offence. (b) It is a defence, however, for the UK firm to show that it took all reasonable precautions and exercised due diligence to avoid committing the offence. (4) Where a UK MiFID investment firm exercises an EEA right under MiFID and has established a branch in another EEA State, any changes to the details of the branch are also governed by MiFID RTS 3A and MiFID ITS 4A. …

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Firms passporting under MiFID
13.6.5A G If a UK firm has exercised an EEA right to establish a branch under MiFID, it must not make a change in the requisite details of the branch (see SUP 13
Annex 1 SUP 13 Annex 1AR), use, for the first time, a tied agent
established in the EEA State in which the branch is established, or cease to use a tied agent established in the EEA State in which the branch is established, unless it has satisfied the requirements of regulation 11A(2) (see SUP 13.6.5BG). … 13.6.5C G A UK MiFID investment firm is also required to notify the FCA of changes to a branch or tied agent in accordance with:
(1) article 7 (Information to be notified concerning the change of branch or tied agent particulars) of MiFID RTS 3A; (2) article 18 (submission of the change of branch particulars notification) of MiFID ITS 4A; and (3) article 19 (submission of the change of the tied agent particulars notification) of MiFID ITS 4A. 13.6.5D G If any of the details in a branch passport notification change, a UK MiFID investment firm is required to notify the FCA by completing the form in
Annex VI of MiFID ITS 4A.
[Note: article 18(1) of MiFID ITS 4A]
13.6.5E G If any of the details in a tied agent passport notification change, a UK MiFID investment firm is required to notify the FCA, by completing the form in Annex VII of MiFID ITS 4A. [Note: article 19(1) of MiFID ITS 4A] 13.6.5F G If a UK MiFID investment firm closes a branch or stops using a tied agent, it is required to notify the FCA using the form in Annex X of MiFID ITS 4A. [Note: articles 18(4) and 19(4) of MiFID ITS 4A] 13.6.5G G (1) Each of the forms in MiFID ITS 4A referred to in SUP 13.6.5DG to SUP 13.6.5FG is replicated in SUP 13 Annex 1AR. (2) These versions should be used for the purposes of notifications to the FCA. (3) The forms should be submitted in accordance with SUP 13.8.1R. …

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The process: MiFID investment firms
13.6.17 G (1) When the appropriate UK regulator FCA receives a notice from a
UK MiFID investment firm (see SUP 13.6.5BG (1)), it is required by regulation 11A(3) to inform the relevant Host State regulator of the proposed change as soon as reasonably practicable. (2) The FCA is required to use the forms in Annex XI, Annex XII or
Annex XIII of MiFID ITS 4A, as applicable.
(3) The firm in question may make the change once the period of one month beginning with the day on which it gave notice has elapsed. …
13.7 Changes to cross border services
13.7.1 G (1) Where a UK firm is exercising an EEA right under the UCITS
Directive, MiFID, the Insurance Directives or AIFMD and is providing cross border services into another EEA State, any changes to the details of the services are governed by the EEA Passport Rights Regulations. (2) References to regulations in this section are to the EEA Passport Rights Regulations. (3) (a) A UK firm which is not an authorised person should note that contravention of the prohibition imposed by regulation 12(1), 12A(1) or 16(1) is an offence. (b) It is a defence, however, for the UK firm to show that it took all reasonable precautions and exercised due diligence to avoid committing the offence. (4) Where a UK MiFID investment firm exercises an EEA right under MiFID to provide cross border services, any changes to the details of the services are also governed by MiFID RTS 3A and MiFID ITS 4A. … Firms passporting under MiFID 13.7.3A G If a UK firm is providing cross border services in a particular EEA State in exercise of an EEA right deriving from MiFID, the UK firm must comply with the requirements of regulation 12A(2) before it makes a change to its programme of operations, including:
(1) changing the activities to be carried on in exercise of that EEA right; …

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…
13.7.3C G A UK MiFID investment firm is also required to notify the FCA of any changes to the information in its investment services and activities passport notification, including changes relating to a UK tied agent, in accordance with:
(1) article 4 (Information to be notified concerning the change of investment services and activities particulars) of MiFID RTS 3A; and (2) article 7 (Submission of the change of investment services and activities particulars notification) of MiFID ITS 4A. 13.7.3D G (1) If any of the details in an investment services and activities passport notification change, a UK MiFID investment firm is required to notify the FCA by completing the form in Annex I of MiFID ITS 4A. [Note: article 7(1) of MiFID ITS 4A] (2) When communicating a change to investment services and/or activities, ancillary services or financial instruments, the firm is required to list all:
(a) the investment services and/or activities and ancillary services that it currently provides or intends to provide in the future; and (b) the financial instruments that are relevant to those activities and services. 13.7.3E G If any of the details in the notification for the provision of arrangements to facilitate access to an MTF or an OTF change, the investment firm operating the MTF or the OTF is required to notify the FCA by completing the form in
Annex IV of MiFID ITS 4A.
[Note: article 11(1) of MiFID ITS 4A]
13.7.3F G (1) Each of the forms in MiFID ITS 4A referred to in SUP 13.7.3DG and SUP 13.7.3EG is replicated in SUP 13 Annex 2R. (2) These versions should be used for the purposes of notifications to the FCA. (3) The forms should be submitted in accordance with SUP 13.8.1R. Termination of an investment services and activities passport 13.7.3G R A UK MiFID investment firm should use the relevant form in SUP 13
Annex 2AR to notify the FCA that it intends to:
(1) change its programme of operations by ceasing to provide cross

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(2) change its programme of operations by ceasing to provide cross border services through a tied agent established in the UK; or (3) terminate in the territory of an EEA State, the provision of arrangements to facilitate access to, and trading on, an MTF or OTF by remote users, members or participants established in that EEA State. …
13.8 Changes of details: provision of notices to the appropriate UK regulator
13.8.1 R (1) Where a firm is required to submit A firm must complete and submit
the following notices in accordance with the procedures in SUP 13.5 for notifying the establishment of a branch or the provision of cross border services:
(a) a notice of a change to a branch or a tied agent referred to in SUP 13.6.5G(1), SUP 13.6.5BG(1), SUP 13.6.5DG, SUP 13.6.5EG, SUP 13.6.5FG, SUP 13.6.7G(1), SUP 13.6.8G, SUP 13.6.9BR, SUP 13.6.9CG, 13.6.9DG and SUP 13.6.10G(1),; or (b) a notice of change to cross border services referred to in SUP 13.7.3G(1), SUP 13.7.3AG(1), SUP 13.7.3DG, SUP 13.7.3EG, SUP 13.7.3GR, SUP 13.7.5G(1), SUP 13.7.6G, SUP 13.7.13BG, SUP 13.7.14G and SUP 13.7.15G , . it must complete and submit that notice in accordance with the procedures set out in SUP 13.5 for notifying the establishing of a branch or the provision of cross border services. … 13 Annex 1R Passporting: Notification of intention to establish a branch in another EEA state … 4 Markets in Financial Instruments Directive (‘MiFID’) [deleted]
Section 4 of the form at Annex 1R is deleted in its entirety. The deleted text is not shown.
…
After SUP 13 Annex 1R (Passporting: Notification of intention to establish a branch in another EEA state) insert the following new SUP 13 Annex 1AR. All the text is new and is not underlined.

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[Editor’s Note: The forms comprising SUP 13 Annex 1AR can be found in the Appendix at the end of this instrument and are as follows:
Part 1: Notice of intention to establish a branch or change branch particulars in another EEA
State in accordance with the Markets in Financial Instruments Directive (MiFID) (Branch passport notification)
Part 2: Notice of intention to use a tied agent established in another EEA State or to amend
the details of a tied agent established in another EEA State in accordance with the Markets in Financial Instruments Directive (MiFID) (tied agent passport notification)
Part 3: Notice of the termination of the operation of a branch or cessation of the use of a tied
agent established in another EEA State in accordance with the Markets in Financial Instruments Directive (MiFID)] 13 Annex 1AR Passporting: Branch passport notifications and tied agent notifications under MiFID ITS 4A This annex consists of only one or more forms. Forms can be completed online now by visiting: http://www.fca.org.uk/firms/being-regulated/passporting/notification-forms for an FCA-authorised person. The forms can also be found through the following address:
Passporting: Branch passport notifications and tied agent notifications under MiFID II ITS 4A of MiFID – SUP 13 Annex 1AR … [Editor’s Note: The forms comprising SUP 13 Annex 2R can be found in the Appendix at the end of this instrument and are as follows:
Part 1: Notice of intention to provide cross border services and activities in another EEA State
in accordance with the Markets in Financial Instruments Directive (MiFID) (investment services and activities passport notification)
Part 2: Notice of intention to provide arrangements to facilitate the access to an MTF or an
OTF from another EEA State under the Markets in Financial Instruments Directive (MiFID)] Amend the following as shown. 13 Annex 2R Passporting: Markets in Financial Instruments Directive MiFID investment services and activities passport notification and notification for the provision of arrangements to facilitate access to an MTF or OTF under MiFID ITS 4A This annex consists of only one or more forms. Forms can be completed online now by visiting: http://www.fca.org.uk/firms/being-regulated/passporting/notification-forms. The forms are can also to be found through the following address: Passporting: Markets in

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Financial Instruments Directive – SUP 13 Annex 2 Passporting: MiFID investment services and activities passport notification and notification for the provision of arrangements to facilitate access to an MTF or OTF under MiFID ITS 4A – SUP 13 Annex 2R After SUP 13 Annex 2R (Passporting: MiFID investment services and activities passport notification and notification for the provision of arrangements to facilitate access to an MTF or OTF under MiFID ITS 4A) insert the following new section. All the text is new and is not underlined. [Editor’s Note: The forms comprising SUP 13 Annex 2AR can be found in the Appendix at the end of this instrument and are as follows:
Part 1: Notice of cancellation of a cross border services and activities passport or cessation of
the use of a tied agent providing cross border services in another EEA State under the Markets in Financial Instruments Directive (MiFID)
Part 2: Notice of intention to cancel arrangements to facilitate the access to an MTF or an
OTF from another EEA State in accordance with the Markets in Financial Instruments Directive (MiFID)] 13 Annex 2AR Passporting: Notification to cease the provision of cross border services under MiFID This annex consists of only one or more forms. Forms can be completed online now by visiting: http://www.fca.org.uk/firms/being-regulated/passporting/notification-forms for an FCA-authorised person. The forms can also be found through the following address:
Passporting: Notification to stop the provision of services under MiFID and notification to terminate the provision, within the territory of an EEA State, arrangements to facilitate access to, and trading on, an MTF or OTF by remote users, members or participants established in that EEA State – SUP 13 Annex 2AR … 15 Notifications to the FCA …
15.3 General notification requirements
…
Breaches of rules and other requirements in or under the Act or the CCA
15.3.11 R (1) A firm must notify the FCA of:

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…
(b) …
(ba) a breach of any requirement imposed by or under either the MiFI Regulations or the DRS Regulations; or … (d) a breach of any directly applicable provision in the MiFID Regulation imposed by MiFIR or any EU regulation adopted under MiFID or MiFIR; or … … …
15.6 Inaccurate, false or misleading information
15.6.1 R A firm must take reasonable steps to ensure that all information it gives to the
FCA in accordance with a rule in any part of the Handbook (including Principle 11) is:
(1) factually accurate or, in the case of estimates and judgments judgements, fairly and properly based after appropriate enquiries have been made by the firm; and (2) complete, in that it should include anything of which the FCA would reasonably expect notice. 15.6.1A R SUP 15.6.1R also applies to all information given, or to be given, by a firm in accordance with any of the following:
(1) a directly applicable provision imposed by MiFIR or any EU regulation adopted under MiFID or MiFIR; or (2) a breach of any requirement imposed by or under either the MiFI Regulations or the DRS Regulations. … 16 Reporting requirements … 16.7A Annual report and accounts

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…
Exceptions from the requirement to submit an annual report and accounts 16.7A.4 R (1) An adviser, local or traded options market maker (as referred to in IPRU(INV) 3-60(4)R), is only required to submit the annual report and accounts if:
…
…
…
16.17 Remuneration reporting
…
High Earners Reporting Requirements
16.17.4 R …
(12) This rule also applies to a BIPRU firm, an exempt CAD firm, a local firm, or any other firm that is not a bank, a building society or an IFPRU investment firm:
…
…
…
SUP 17 is deleted in its entirety except for the purpose of SUP TP 9. The deleted text is not shown. 17 Transaction reporting [deleted] After SUP 17 (deleted) insert the following new chapter. All the text is new and is not underlined. 17A Transaction reporting and supply of reference data 17A.1 Application 17A.1.1 R This chapter applies to:

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(1) a MiFID investment firm (excluding a collective portfolio management investment firm) which:
(a) executes transactions in a reportable financial instrument; and (b) is required under article 26(1) of MiFIR to report its transactions to the FCA; (2) an operator of a trading venue:
(a) through whose systems and platforms a transaction in a reportable financial instrument is executed by a person not subject to MiFIR; and (b) which is required under article 26(5) of MiFIR to report such transactions to the FCA; (3) a third country investment firm which executes transactions in a reportable financial instrument; and (4) a systematic internaliser or an operator of a trading venue which is required under article 27 of MiFIR to supply identifying reference data relating to financial instruments traded on its system or trading venue to the FCA. [Note: article 26 of MiFIR and MiFID RTS 22 contain requirements regarding transaction reporting that are directly applicable to a firm in SUP 17A.1.1R(1) or (2), and to an ARM or an operator of a trading venue which acts on behalf of a MiFID investment firm subject to article 26(1) of MiFIR] 17A.1.2 G GEN 2.2.22AR has the effect of requiring third country investment firms to comply with the transaction reporting requirements in article 26 of MiFIR and MiFID RTS 22 as though they were MiFID investment firms. [Note: article 27 of MiFIR and MiFID RTS 23 contain requirements about the supply of reference data that are directly applicable to a systematic internaliser in relation to financial instruments traded on its system or a trading venue in relation to financial instruments admitted to trading on a regulated market or traded on an MTF or OTF] 17A.2 Connectivity with FCA systems 17A.2.1 R The following firms or operators of trading venues must deal with the FCA in an open and co-operative way when establishing a technology connection with the FCA for the submission of transaction reports and/or the supply of reference data:

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(1) a firm in SUP 17A.1.1R(1) or 17A.1.1R(3) that chooses to submit its reports directly to the FCA instead of using an ARM; (2) an operator of a trading venue in SUP 17A.1.1R(2), other than a UK RIE that is not itself an ARM; and (3) a firm or operator of a trading venue in SUP 17A.1.1R(4), other than a UK RIE. 17A.2.2 R To ensure the security of the FCA’s systems, a firm or operator of a trading venue in SUP 17A.2.1R must:
(1) sign the MIS confidentiality agreement at MAR 9 Annex 10D; and (2) send it by email it to MDP.onboarding@fca.org.uk or post an original signed copy to the FCA addressed to:
The Financial Conduct Authority
FAO The Markets Reporting Team
25 The North Colonnade
Canary Wharf
London E14 5HS.
17A.2.3 G Once the FCA receives the MIS confidentiality agreement from the firm or operator of a trading venue, the FCA will:
(1) provide the firm or operator with the Market Interface Specification (MIS); and (2) request the firm or operator to:
(a) confirm to the FCA that it can satisfy these specifications by completing the FCA MDP on-boarding application form at MAR 9 Annex 7D; and (b) provide the completed form and any relevant documents to the FCA together with the associated fee in FEES 3.2.7R. 17A.2.4 R The firm or operator of a trading venue must confirm to the FCA that it can satisfy the FCA’s technical specifications before it can establish a technology connection with the FCA for the submission of transaction reports and/or the supply of reference data. 17A.2.5 G Where an ARM is used to satisfy a MiFID investment firm’s or a third country investment firm’s transaction reporting obligations in accordance with article 26 of MiFIR or GEN 2.2.22AR, MAR 9 applies. SUP TP 1 Transitional Provisions …

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SUP TP 1.2
(1) (2)
Material to which the transitional provision applies (3) (4) Transitional provision (5) Transitional provision:
dates in force
(6)
Handbook provision:
coming into force
…
9A … …
9AA SUP 13 R (1) Where a person wishes to obtain a passport for an investment service or financial instrument to which MiFID II will apply, but to which MiFID does not apply, all changes made to SUP 13 by [FCA Handbook Instrument] on 3 January 2018 instead take effect from 31 July 2017. From 31 July 2017 until 2 January 2018 [insert date that instrument comes into force] (2) For the purposes of this transitional provision, SUP 13.5.3R(1) and SUP 13.8.1R(1) do not apply. A person submitting a notice to which SUP 13.5.3R(1) or SUP 13.8.1R(1) would otherwise apply must do so by email to MiFID.passport@fca. org.uk . (3) This transitional provision also applies where a person to whom MiFID does not apply, but to whom MiFID II will apply, wishes to obtain a passport that takes

FCA 2017/xx effect from the application date of MiFID II.
9AB SUP 13 G (1) SUP TP 1.2 9AAR is intended to allow a person to apply for a passport for an investment service or financial instrument introduced by MiFID II, prior to the application date of MiFID II. It also allows other persons such as those who will cease to be exempt under MiFID II, to apply for a passport that takes effect from the application date of MiFID II. From 31 July 2017 until 2 January 2018 [insert date that instrument comes into force] (2) A person who wishes to obtain a passport for an investment service or financial instrument to which MiFID applies, as well as for an investment service or financial instrument to which MiFID does not apply but to which MiFID II will apply, should submit two separate notifications. After SUP TP 8 (Financial Services (Banking Reform) Act 2013: Approved persons in small non-directive insurers) insert the following new chapter SUP TP 9. All this text is new and is not underlined. TP 9 Transitional Provisions in relation to the MiFID Regulation
9.1 Continuing obligations under the MiFID Regulation
9.1.1 R (1) If the condition in (2) is met, SUP TP 9 applies in respect of an
obligation or requirement in, or under, the following with which a firm

FCA 2017/xx must comply:
(a) the MiFID Regulation; or
(b) a rule under SUP 17 (Transaction reporting).
(2) As at 2 January 2018, a firm is under an obligation or requirement to comply, or to have complied, with a provision referred to in (1) in the version in force on that date.
9.1.2 R A firm remains obliged to comply with the obligation, requirement or rule
referred to in SUP TP 9.1.1R(1)(a) and (b) until such time as effective compliance is achieved.
9.1.3 R SUP 15 (Notifications to the FCA) continues to apply in respect of a breach
of a requirement or a rule referred to in SUP TP 9.1.1R.
Purpose
9.1.4 G The purpose of SUP TP 9.1.1R is to ensure that, as appropriate, firms:
(1) comply with the provisions of the MiFID Regulation and SUP 17 (as at 2 January 2018); and (2) notify and remedy breaches of these provisions whenever those breaches come to light, notwithstanding the repeal of the MiFID Regulation on 3 January 2018.

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Annex N
Amendments to the Decision Procedure and Penalties Manual (DEPP) In this Annex, underlining indicates new text. 6 Penalties …
6.2 Deciding whether to take action
…
Action against individuals under section 66 of the Act …
6.2.5 G In some cases it may not be appropriate to take disciplinary measures
against a firm for the actions of an individual (an example might be where the firm can show that it took all reasonable steps to prevent the breach). In other cases, it may be appropriate for the FCA to take action against both the firm and the individual. For example, a firm may have breached the rule requiring it to take reasonable care to establish and maintain such systems and controls as are appropriate to its business (SYSC 3.1.1R or SYSC 4.1.10R or article 21(5) of the MiFID Org Regulation (as applied in accordance with SYSC 1 Annex 1 2.8AR, SYSC 1 Annex 1 3.2-AR, SYSC 1
Annex 1 3.2-BR, SYSC 1 Annex 1 3.2CR and SYSC 1 Annex 1 3.3R), and
an individual may have taken advantage of those deficiencies to front run orders or misappropriate assets. …

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Annex O
Amendments to the Consumer Credit sourcebook (CONC) In this Annex, underlining indicates new text. 7 Arrears, default and recovery (including repossessions) …
7.6 Exercise of continuous payment authority
…
7.6.15 G …
(3) Firms are reminded of their record-keeping obligations under SYSC 9.1.1R and SYSC 9.1.1AR (general rules on record-keeping) which in particular require sufficient records to be kept to ascertain that the firm has complied with all obligations with respect to customers. These should include, for example, arranging to keep records of payment requests (including refusals of payment requests) made under continuous payment authorities and to keep suitable written or other records of the consents referred to in CONC 7.6.1R, CONC 7.6.12R, CONC 7.6.13R and CONC 7.6.14R. …

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[Editor’s Note: In this Annex, certain “EU” provisions are deleted and have been replaced with Notes signposting readers to the relevant EU Regulations.]
Annex P
Amendments to the Recognised Investment Exchanges sourcebook (REC) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 1 Introduction
1.1 Application
[Note: ESMA has also issued guidelines under article 16(3) of the ESMA Regulation covering various topics relating to automated trading and direct electronic access. See www.esma.europe.eu/system/files/esma_2012_122_en.pdf]
1.1.1 G (1) The rules and guidance in this sourcebook apply to recognised
bodies and to applicants for recognition as RIEs under Part XVIII of the Act (Recognised Investment Exchanges and Clearing Houses) and (as RAPs) under the RAP regulations. (2) The recognition requirements and guidance in REC 2 relate primarily to UK RIEs which are recognised, or applying to be recognised, to operate a regulated market in the United Kingdom. (3) While some recognition requirements in REC 2 apply to other trading venues operated by UK RIEs, guidance in respect of those venues is set out in MAR 5 and MAR 5A. …
1.1.2 G (1) UK RIEs are exempt persons under section 285 of the Act
(Exemption for recognised investment exchanges and clearing houses). (2) UK RIEs must satisfy recognition requirements prescribed by the Treasury (in certain cases with the approval of the Secretary of State) in the Recognition Requirements Regulations. UK RIEs must also satisfy the MiFID implementing requirements in the MiFID Regulation MIFID/MiFIR requirements. RAPs must satisfy the recognition requirements prescribed by the Treasury in the RAP regulations, under the auction regulation and must also be UK RIEs and so are subject to requirements under the MiFID Regulation MiFID/MIFIR requirements. ROIEs must satisfy recognition requirements laid down in section 292 of the Act (Overseas investment exchanges and overseas clearing houses).

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(3) UK RIEs must also comply with the following:
(a) notification requirements in, and with notification rules made under, sections 293 (Notification requirements) and 295 (Notification: overseas investment exchanges and clearing houses) of the Act; and (b) any rules made under the FCA’s rule-making power in regulation 11 of the Recognition Requirements Regulations.
1.1.3 G (1) The recognition requirements for UK recognised bodies and the
MiFID implementing requirements are set out, with guidance, in REC 2. The RAP recognition requirements (other than requirements under the auction regulation which are not reproduced in REC) are set out, with guidance, in REC 2A. (1A) Key relevant MiFID/MiFIR requirements directly applicable to UK recognised bodies are signposted as “Notes”. … …
1.2 Purpose, status and quotations, notes or references
…
Status
1.2.2 G (1) Most of the provisions in this sourcebook are marked with a G (to
indicate guidance) or an R (to indicate a rule). Quotations from UK statute or statutory instruments are marked with the letters “UK UK” unless they form part of a piece of guidance. Quotations from the directly applicable MiFID Regulation are marked with the letters “EU”. Other informative text regarding provisions of EU directives or directly applicable EU regulations which is meant to be for the convenience of readers but is not part of the legislative material is preceded by the word “Note”. For a discussion of the status of provisions marked with a letter, see Chapter 6 of the Reader’s Guide. … Quotations
1.2.3 G (1) This sourcebook contains quotations from the Act, the Recognition
Requirements Regulations, the RAP regulations and, the Companies Act 1989 and the MiFID Regulation and, where necessary, words have been added to, or substituted for, the text of the provisions to facilitate understanding.

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…
2 Recognition requirements
2.1 Introduction
2.1.1 G (1) This chapter contains the recognition requirements for UK RIEs
(other than RAPs) and sets out guidance on those requirements. Except for REC 2.5A, references to recognised body or UK recognised bodies in the rest of this chapter shall be read as referring to UK RIEs. (2) This chapter also contains the MiFID implementing requirements for UK RIEs “Notes” with informative text in relation to MiFID/MiFIR requirements applicable directly to UK RIEs operating trading venues. (3) This chapter directs UK RIEs to certain recognition requirements and guidance on those requirements found in other parts of the Handbook. …
2.1.4 G Location of recognition requirements and guidance
Recognition
Requirements
Regulations
Subject Section in REC 2
/ other parts of the Handbook
Regulation 6 Method of satisfying recognition requirements 2.2
Part 1 of the Schedule UK RIE recognition
requirements
Paragraph 1 Financial Resources 2.3
Paragraph 2 Suitability 2.4
Paragraphs 2A and 2B Management Body 2.4A Paragraph Paragraphs 3, 3A, 3B, 3C, 3D, 3E, 3G and 3H Systems and controls, market making agreements, halting trading, direct electronic access, colocation services, fee structures, algorithmic trading, tick size regimes, synchronisation of business 2.5

PS17/5: Markets in Financial Instruments Directive II implementation – Policy Statement I

Lineage: In force

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