Firms that conduct MiFiD II activities without the necessary permissions face civil, regulatory and/or criminal consequences.
The MiFID II rules, which are set to come into force on January 3, 2018, are currently at the focus of regulatory attention in Europe.
Today, the UK Financial Conduct Authority (FCA) published an announcement that is important to businesses that need to change their regulatory permissions as a result of MiFID II. The regulator is giving such firms time until July 3, 2017, to submit a complete application for authorisation or a variation of permission, in order to ensure that the authority can determine it before MiFID II takes effect.
The regulator reminds companies that if they carry on MiFiD II activities without the necessary permissions they may face civil, regulatory and/or criminal consequences.
The FCA receives more than 8,500 reports of potential unauthorised business in the UK a year. The majority of these reports come from consumers and firms.
One of the consequences from the implementation of MiFID II in the UK is that certain binary options will be regulated by the FCA rather than the Gambling Commission. According to data from the FCA’s Consumer Contact Center, binary options were the type of investment products that saw the most growth in enquiries for the period from December 1, 2015 to November 30, 2016. Binary options accounted for 17% of enquiries within investment products. Consumers have been contacting the FCA mainly to verify whether firms offering binary options are regulated.
Of course, MiFID II consequences are vaster than that. In terms of fintech, they will entail a sharp growth in the use of regtech solutions as they seem as the single proper method allowing companies to deal with the huge volume of reporting requirements. The specific categories which companies are designated under MiFID II include not only b-book non-bank FX brokerages (systematic internalizers) and OTFs and MTFs, but also Regulated Marketplaces (RMs), which are derivatives exchanges.
Moreover, a closer look at MiFID II intrinsic rulings on algorithmic trading highlights a number of factors that may lead to single dealer platforms at banks – those same platforms providing Tier 1 liquidity to prime of prime brokerages – being subject to changes with regard to algorithmic trading, a practice that is extremely common among the interbank dealers. And this should warrant the interest of the OTC derivatives sector. The future of “dark pools” is an extremely interesting question in this context.