On 3 July 2017, the Financial Conduct Authority (‘FCA’) published its second policy statement (‘Policy Statement’) on the UK implementation of the revised Markets in Financial Instruments Directive (‘MiFID II’). The Policy Statement sets out the final rules and guidance on conduct of business, client assets and certain other matters. The first FCA policy statement1 was published in March 2017 and covered areas such as trading venues, rules applicable to algorithmic and high-frequency trading, and certain firm organisational requirements.
The Policy Statement covers some of the key rules and guidance of interest to asset managers, including the administration of research payment accounts, best execution requirements, telephone taping and client categorisation.
Inducements and Research
Application of the Unbundling Rules
Under MiFID II, research is treated as a type of banned ‘inducement’ except where: (i) the manager pays for such research out of its own resources; or (ii) the research is paid for through a Research Payment Account (‘RPA’) controlled by the manager and funded through a specific research charge to the client based on a pre-agreed budget. To facilitate the unbundling, EU brokers will be required to identify the charges for executing transactions separately from research and any other services or benefits they provide. Moreover, the supply and charges for such other services or benefits may not be influenced or conditioned by the levels of commission payments.