Chartered Accountants and Professional Business Advisers

Financial Services News - Winter 2015


Markets in Financial Instruments Directive II is European legislation which covers a wide spectrum of the European financial market. As with most European legislation, particular aspects of it are discretionally applied by the corresponding country’s regulatory body (in our case the FCA). We’ve summarized some of the key changes:

Organized Trading Facilities (OTF) – This is a new category of trading venue which will sit alongside Regulated Markets and Multilateral Trading Facilities. They will only trade in non-equity instruments (i.e. derivatives) and amongst their aims is to bring a degree of transparency and structure to this sector.

Remuneration Rules – The tight rules for remuneration for banks are being extended to investment firms, although they only come into effect if an individual is being paid more than €1m.

Best execution – This will affect broker dealers, and additional information will need to be provided to clients in relation to best execution. The top five execution venues for each of the main categories of financial instruments will need to be disclosed annually. Where a client specifically instructs an order to be placed with a particular venue, the firm will still need to comply with their wishes. However, where fees differ by execution venue the firm must inform the client of the advantages and disadvantages of each one.

Senior Management Rules – Members of the board must have sufficient time to commit to the firm and there are limits on the number of executive directorships each can hold.

Consolidated Tape – This is a transaction record of trades in shares (and ultimately derivatives) and should be available free of charge. New organizations called Consolidated Tape Providers will be authorized to produce this record.

There are many changes under MiFID II and the FCA have a page which summarizes the main changes:

At time of writing MiFID II is due to be effective from 3 January 2017, however the European Parliament is considering delaying implementation until January 2018.

Changes for Fund Managers


This comes into effect for funds with accounting period beginning on or after 1 January 2015. So with a few early adopters aside, this will first be seen for the 31 December 2015 year ends. There are a number of changes and have been summarized in our document here:

AIFMD Disclosures

Funds will need to disclose certain aspects of remuneration in the Long Form Report under the Alternative Investment Fund Managers Directive (AIFMD):

The total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the Alternative Investment Fund Manager (AIFM) to its staff, and number of beneficiaries, and, where relevant, carried interest paid by the Alternative Investment Fund (AIF); and

The aggregate amount of remuneration broken down by senior management and members of staff of the AIFM whose actions have a material impact on the risk profile of the AIF.

These are very close to the new disclosures which will be required under UCITS V.

ELTIFs (European Long Term Investment Funds)

This is a proposed new type of fund investing in assets with a long term time horizon (i.e. infrastructure projects). It will be regulated under AIFMD legislation. The manager must be an authorized full scope AIFM. Due to money being tied up for long amounts of time with few opportunities for redemption, there will be tight controls on marketing these funds to retail clients.


Investment Funds currently registered under Undertakings for Collective Investments in Transferable Securities (UCITS) are currently governed by UCITS IV, and the latest version of the rules is due to come into force on 18 March 2016.

Amongst the new rules there are some additional requirements for depositaries, and remuneration requirements for the fund manager. The latter is very similar to the rules within AIFMD. Firms will have to establish and apply remuneration policies which are consistent with, and promote effective risk management. They should not promote excessive risk taking. The policies will need to be disclosed in the prospectus or a website and a signpost in the KIID is needed explaining how to get to it.

The fund long report will need to show details of the remuneration paid by the UCITS management company to its staff and other information about its practices. COLL will be updated to reflect these rule changes.

Reporting to the FCA

The fund manager of a UCITS scheme is currently required to notify the FCA on a regular basis (and at least annually) of its derivative risk management process (DRMP). This includes details of the derivatives and forward transactions in each UCITS scheme it manages. The format however was not defined, so unsurprisingly the FCA received information of varying levels of detail and format. The FCA is proposing a new standard template and the report will need to be submitted on the last business day of November each year, containing DRMP information as of 15 October of that year.

Other changes

Intermediate unit holders

These apply to intermediaries who are holding units in a Collective Investment Scheme on behalf of a beneficiary. Rules are proposed to be changed to remove some of the information which intermediate unit holders have to pass onto the beneficiaries. Amongst these is the short report, and the proposals are still being consulted upon.

Senior Management Regime

Firms caught by this need to map their current ‘Approved Persons’ to the new functions and need to submit documentation such as the Statement of Responsibilities and firm responsibilities map (due 8 Feb 2016). This is applicable to banks and large firms, so unlikely to capture the majority of our clients.

Website updates

The FCA have updated several of their webpages and web-portals. GABRIEL now has a new log in screen, and the FCA Handbook has been redesigned with the intention of making it easier to navigate.

The ONA system (which is used to change things like standing data) is now called “Connect”, but essentially does the same thing. You may need to re-register to use Connect.

Asset Encumbrance and COREP

The FCA in conjunction with the EBA continue to issue revised technical standards which tighten up on the rules for reporting. We have just heard that blank templates will no longer be accepted so when generating the XBRL file, you will need to ensure that these are not selected. We have the necessary software to make the quarterly COREP and Asset Encumbrance reports so please get in touch if you would like this service.

FRS 102

Financial Reporting Standards are changing and the new FRS 102 is effective for periods beginning on or after 1 January 2015. As many FCA firms have their year ends at 31 December, it means they will be the first to be affected by the changes. As well as the format of the accounts changing, there are differences in the way certain items are treated. We have produced an article summarizing the changes here:

Please get in touch if you would like further assistance with the transition to FRS 102.

Hot Topic

The FCA periodically focus on particular areas of legislation. Recently it has been the rules around client money and the latest one, according to their “Regulation round-up”, is co-operating with the regulator.

They have reiterated that firms must communicate with the FCA under Principal 11, in an open an co-operative way and disclose to them anything relating to the firm which the regulator would reasonably expect notice of. This includes, misconduct, risks, and anything which affects the firm’s ability to comply with FCA rules.

If you get a query from the FCA you’re expected to answer in a timely fashion and recent big fines for not being terribly co-operative or misleading, include £2.1m to the Bank of Beirut regarding financial crime systems and controls, and £227m to Deutsche Bank for LIBOR and EURIBOR related misconduct.

Permissions for smaller firms have also been cancelled for failing to respond to FCA requests for information, so if you get one, make sure you respond!

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above. If you would like advice or further information, please speak to your usual Shipleys contact.

Need more help? Please contact us at or +44 (0)20 7312 0000