Brokers, Proprietary Traders Facing New Regulatory Obligations Under MiFID II


The long-awaited MiFID II deadline and implementation is steadfastly approaching on January 3, 2018. Ahead of this date, the UK’s Financial Conduct Authority (FCA) has issued its latest update, highlighting the need for proprietary traders and those providing them with market access to possibly require authorization under MiFID II.

With less than four months until MiFID II comes into effect, a number of firms that are already authorized may require a further round of authorizations. More specifically, this may include Variation of Permission (VoP) to carry out activities starting in 2018.

MiFID II is poised to dramatically reshape the financial services industry. Today’s update is the latest example of the new regime mandating a series of changes to existing regulations and authorizations for firms.

The latest directive from the FCA follows on the heels of a previous call to submit and complete applications for VoP and relevant authorizations by July 3, 2017. In doing so, the FCA could guarantee applications processed for new permissions ahead of the January 3, 2018 deadline.

Thus far, the process has progressed rather smoothly, with the FCA continuing to receive applications from a larger number of firms seeking to operate a trading venue or become a Data Reporting Services Provider (DRSP).

New regime, new rules

However, under MiFID II, proprietary traders may need to procure additional authorization. In particular, this entails venues that operate as an unregulated proprietary trader who uses a form of direct electronic access (DEA) that is provided by a regulated firm to access trading venues.

Such groups may require additional authorization from the implementation of MiFID II this January and are instructed to consult the FCA’s application and notification user guide and Handbook.

Furthermore, firms providing clients with direct electronic access to trading venues will have an obligation under MiFID II to carry out due diligence on prospective DEA clients. The FCA is therefore advising financial groups to work closely and in tandem with their respective client base to ensure they are aware of the potential need to be authorized and be authorized in a timely manner.

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