The European Union's Markets in Financial Instruments Directive 'goes live' in January 2017, but the UK's Financial Conduct Authority wishes to impose its own agenda on the proceedings.

MiFID II refers to the European Union's directive 2014/65/EU and regulation (EU) No 600/2014, which will revise the existing MiFID framework applicable to investment firms and market operators. The European Securities and Markets Authority is working on 'level 2 measures' and recently published its so-called 'technical advice' in December 2014. A table of the key dates on the road to MiFID II is set out below.

The FCA has also started its preparations for MiFID II with its discussion paper (DP14/3) on the use of dealing commission and its subsequent feedback statement.

Dealing commission

In February 2015, the FCA published a response to DP14/3, which concerns the use of dealing commissions when asset managers execute trades, and at the same time, obtain external research from the firms that provide those execution services. In the response paper, the FCA supports the view of ESMA, which is to separate investment managers’ payments for research from execution arrangements, in order to give their clients a clearer picture of how much their asset managers are spending on external research.

Both ESMA and the FCA have proposed that, under the new MiFID II regime, each asset-manager should either pay directly for the research or, alternatively, set up a ring-fenced account for its clients which it would use solely to pay for research from external sources.

In the same feedback statement, the FCA also expressed a preference to extend these rule changes in inducements and the uses of dealing commission beyond the scope of MiFID II, to include UCITS (Undertakings for Collective Investment in Transferable Securities Directives) and AIFM (alternative investment fund manager) activities.

What investment managers ought to do now

The FCA expects investment managers to comply with the current rules, which are to be found in COBS 11.6. These require them to act in the best interest of their clients when they obtain research whilst executing trades through services where costs for both services are bundled together.

The FCA also encourages investment managers to start looking at alternative options which would allow them to separate the payments for both research and execution services, and present these fees clearly to their clients. The FCA explicitly states that firms should not wait until January 2017, when MiFID II applies in practice, to change their arrangements.

Key dates

March 2015 - The FCA published a discussion paper on MiFID II implementation, seeking opinions from the financial services industry.

Early summer 2015 - Public consultation covering the implementation of 'technical standards' and ESMA guidelines is mandated in MiFID II.

June 2015 - Final regulatory 'technical standards' to be submitted to the European Commission, the nearest thing the European Union has to an executive branch.

Autumn 2015 – FCA to hold its second MiFID II Annual Conference.

December 2015 - Final implementing 'technical standards' and guidelines to be submitted to the European Commission. The FCA will publish the main consultation paper about proposals for changes to its 'handbook' to implement MiFID II/MiFIR.

June 2016 – There will be an FCA feedback and policy statement delineating the final changes to the FCA's handbook, in order to accommodate MiFID II/MiFIR by 3 July 2016.

January 2017 - MiFID II applies in practice.

* Petra Hollis is a partner at the City law firm of Laven Partners. She can be reached on +44 207 838 0010 or at petra@lavenpartners.com