Association of Professional Compliance Consultants

The body for compliance consultants who advise firms regulated in the UK.

The APCC is active in enhancing the professional standards of compliance consultants and is recognised as a trade body by the FCA and other regulators. This provides our members with significant benefits in terms of direct access to the Regulators as well as business leads.  The APCC often works in conjunction with the FCA to pilot or test new initiatives, and we also provide with valuable feedback on specific subjects as requested by them.

MIFID Meeting Minutes

Present on behalf of APCC – Paul Dyer, APCC CEO

 

  1. Overview of structural changes (Stephen Hanks)
  2. Stephen outlined a number of the structural changes that have taken place; noted that Director of Int’l Policy not being replaced (role being consolidated) and that Nick Miller’s replacement was not known at this time.
  3. David Geale now responsible for markets and conduct elements of MIFID2

     

  4. Product Governance (Stephen Pope)
  5. Stephen provided talked about MIFID2 impacts upon processes when bringing products and services to market and then monitoring them through lifecycle – more driven by questions than answers (on several levels).
  6. They use TCF principles as a basis for regulation and try to defer to them, along with ‘proportionality’ when complexity in MIFID2 definition and application arises.
  7. Apparently at a very high level, not much change for FCA.
  8. ESMA goes into a lot of detail, principally for the regimes which don’t have defined standards.
  9. “in some areas, MIFID2 potentially goes beyond common sense”

     

Q     Institutional bond business goes back 400 years, why are they of interest to ECB?

A     Interpretation demands proportionality – ‘Proportionate application of rules’ Don’t want to intrude where there is less chance of consumer detriment. Feedback needs to be in industry response.

 

Q     Legacy products – lots of retail businesses have products they launched years ago, what processes should firms adopt for old estate with these changes?

A     FCA’s work in long term insurance products may provide guidance around expectations. Ongoing consideration of problems. No plans to explicitly include legacy product review findings within regulation, but should be considered.

 

Q     Blended Portfolio products (fidelity), every time product is sold there needs to be a target market report back to the manufacturer?

A     Target market may not be as specific as it sounds. Proportionality should reign, there is something in guidance about target market not necessarily being portfolio as a whole.

 

Q     Open Architecture funds e.g. 200 fund groups, with 2000 funds in each (Cofunds) – 800 regulatory returns a year with new regime? Could mean that we need to reissue client documentation and potentially strays into suitability?

A     Proportionality should reign e.g. Regulatory CIMS and vanilla products. Regular surveys of entire market don’t necessarily add value. Responsibilities are much more driven by manufacturer i.e. how do we know that product is doing what it was supposed to at design. Could sample or work with IFAs to get feedback. Risky products where there are unexpected trends may prompt review.

Q     Legacy products – agreeing target market for all products for distributors before you can distribute, after this goes live?

A     You need to feedback on CP, FCA only has limited power and voice. Look at risks, has manufacturer communicated expectations appropriately, is product working as expected and is there enough information? What could and is the detriment?

 

Q     So there is an expectation that investment managers do undertake this activity?

A     RPPD in retail conduct

 

Q     Cooperation and potential for inconsistency between regulators?

A     Whilst there is potential for inconsistency, there is debate ongoing to mitigate differences in opinion between key regulatory players. The risk is inevitable.

 

Q     Requirements talk about communication channels with clients and using ‘face to face’ and written letter when advice is not being followed, however with certain types of business this doesn’t seem appropriate?

A     Yes, there should be more explicit guidance. Online ‘Execution only’ by definition has less of a requirement to check

 

Q     Possible that non-MIFID firms (manufacturer) put together target market?

A     Possible yes, but distributor can still consider suitability. The relationship could be complex e.g. secondary market. This is about understanding your role in the process and taking proportionate action. The longer the production chain, the more that the conversation moves to how product is repackaged. Responsibility of distributor to follow their normal process.

 

Q     Potential for a multi-party chain of trading in and out of EU, which complicates the manufacturer, distributer and client relationship?

A     Stick to suitability and target market of product. Is this product relevant for this distribution channel?

 

  1. Authorisations (Iliana Lani)
  2. Presentation to be circulated – Iliana talked through MIFID impact upon application forms, approx. 80% changing.
  3. Comments and feedback requested by next Tuesday.

     

    Q     What happens if a firm makes an application but then wants to change their permissions?

    A     You can change application in course, however depending upon extent of change, this may change its status in process

     

    Q     What about firms who consolidate businesses to use existing permissions of subsidiaries?

    A     Talk to Supervisory team in first instance

     

    Q     Investment firm in multiple locations, do they need multiple applications?

    A     No, one application

     

  4. Q&A on ESMA (Stephen Hanks)
  5. Suitability & testing section received most questions in consultation

     

    Q     Suitability – clients who deal against advice / or no advice for advisory client – in those circumstances clients should confirm in writing??

    A     It’s a consultation for this reason, you should feedback. Need to make sure there’s no inducement. FCA welcome thoughts.

     

    Q     Some online portals apply ‘only partial KYC’ – some discretionary firms don’t ask for anything online?

    A     Supervisory issue

     

  6. ESMA is working upon more SI (Systematic Internalisers) Guidance/Q&A

     

    Q     Will there will be a list of SIs by instrument available?

    A     By name, yes, but not done on any sort of disaggregated basis

     

  7. RTS on Packages
  8. Relatively rushed but recognizes that this is a tricky area, proposal is “least worst but not perfect option”

     

    Q     Legs versus packages; this is a logisitical challenge for firms?

    A     This is what ‘they’ thought was simplest

     

    Q     Surely the FCA is part of ESMA?

    A     This was pulled together by ESMA and we agreed it was a reasonable start

     

    Q     What is a ‘standardized’ leg of a package?

    A     This relates to pre-trade transparency. Always a balance when pulling these things together. This is about how the market operates in in applying intent in practice.

     

  9. AOB (Stephen Hanks)
  10. View on format of meetings (with new larger audience) are welcomed