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'Passporting' for MiFID II begins

Chris Hamblin, Editor, London, 31 July 2017

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The UK's Financial Conduct Authority has opened its doors to requests for 'passports' from firms that want to perform business under the EU's Markets in Financial Instruments Directive.

Cross-border service 'passports' (rights to trade elsewhere in the European Economic Area) are de rigeur for firms that want to conduct new "MiFID II activities" (such as operating an organised trading facility, activities relating to emission allowances or binary bets) that now require regulatory authorisation. These passports come into effect when the directive does, on 3 January 2018. Existing MiFID passports will remain valid after that date.

The FCA is warning firms that "for all notifications received after 2 December 2017 it will not be possible to guarantee that the relevant notifications will be issued to the regulators concerned before 3 January 2018, [so] whenever possible, you should submit service passport notifications by 2 December 2017: this deadline will help us assess notifications and send them to relevant regulators in the European Economic Area (EEA) before MiFID II takes effect."

Authorised firms that want to 'passport' activities under MiFID I will be able to submit 'passport notifications' through Connect, the FCA's online application and notification system, until 3 December 2017. Anyone who logs onto the system will require Chrome, Internet Explorer 11, Microsoft Edge, Safari, Firefox or Opera. It is usable for applications and notifications for: approved persons; appointed representatives; variation of permission; standing data; Part 4A permission (dual regulated firms still have to use the paper forms); payment institutions' authorisation, registration or cancellation; PSD agents adding, amending or removing; cancellations of Part 4A permissions; consumer buy-to-let registration; and suspicious transaction and order reports (STORs).

Matt Smith, the CEO of a compliance technology and data analytics firm called SteelEye, told Compliance Matters: "For financial markets, passporting is one of the most contentious points in Brexit discussions. Some firms may still not be sufficiently aware that businesses now need to apply for passports for each member state that they wish to provide cross-border services with. This is in contrast to MiFID I where firms only needed so submit one passporting application for the entire EEA.

"Though the long-term outlook on passporting is still uncertain as negotiations around financial services’ access to the single market is being determined, firms would do well to prepare now for MiFID II. Delayed applications could leave financial firms participating in, or intending to participate in, the European markets, in breach of regulations and unable to operate as they had planned."

In its "application notification guide," the FCA states that firms should send it notifications of cross-border service passports by 2 December 2017 "to enable us to send them to relevant EEA regulators by 3 January 2018." As MiFID II comes into force on that date, this phrase might suggest that the FCA will be doing all the real evaluation and the EEA regulators will be content to rubber-stamp its decisions.

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