Law360, London (February 16, 2017, 5:22 PM GMT) —
Britain has decided to opt out of European Union rules that permit member states to choose whether they require a non-EU financial institution to establish a branch in their jurisdiction when it provides investment services, the country’s finance department said Thursday.
The Treasury said it will maintain the U.K.’s current third country regime, which allows but does not require the establishment of a branch, and will not implement that part of the EU’s Markets in Financial Instruments Directive II, known as MiFID II.
“The current regime has the virtue of being sufficiently tailored to client types and to the risks in question, and balances the need to maintain investor protection, market integrity and financial stability, while remaining open to business internationally,” the Treasury said in response to a consultation on the impending market rules.
MiFID II is a centerpiece in the array of regulatory reforms introduced since the 2008 global financial crisis. The sweeping regulation will significantly change how almost all unlisted securities are priced, traded and reported once fully implemented in January 2018.
The government said it will also create a specific regime for data-reporting service providers — which will be subject to new authorization requirements under MiFID II — rather than including them as regulated activities under the existing Financial Services and Markets Act passed in 2000.
In addition, the U.K. will create a stand-alone power that will allow it to implement MiFID II rules that hand regulators the power to remove board members from investment firms or market operators.
Under the U.K.’s approved persons and senior manager regimes, regulators can remove individuals performing senior management functions. However, the rules do not extend to so-called recognized investment exchanges, such as the London Stock Exchange, which are authorized to regulate securities trading in the U.K.
“The government, having carefully considered the options, does not consider that existing FSMA powers are sufficient. In particular, this is because not all natural persons on a management board of a designated investment firm will necessarily be an approved person,” the Treasury said.
An approved person is an individual who has been permitted by the country’s finance watchdogs to perform one or more regulated activities on behalf of an authorized firm.
The Financial Conduct Authority is consulting on rules around the specialist conduct of business regimes, small company growth and transaction reporting, while the Prudential Regulation Authority has proposed rules that harmonize corporate governance and organizational requirements across financial institutions.
The U.K. is due to introduce MiFID II into national legislation and regulations by July 3, 2017, but the sprawling rulebook has proved so hard to implement that the EU delayed its start date by a year.
According to a poll released in November by a leading financial services company, nearly three-quarters of asset managers are worried about being ready in time for MiFID II when it kicks in.
The EU’s securities watchdog has said making sure member states all implement MiFID II to the same degree is its top priority for 2017. The Paris-based European Securities and Markets Authority said it will work to ensure “consistent application” of those rules across the 28-nation bloc in its program for 2017.
–Editing by Ed Harris and Emily Kokoll.