Q1. Why does it matter whether or not we fall within the scope of MiFID?
Depending on whether or not you fall within the scope of MiFID, you may be subject to:
- • domestic legislation implementing MiFID (for example, FCA rules);
- • directly applicable legislation made by the European Commission (the MiFID Regulation and EU CRR3); and
- • domestic legislation implementing the CRD33 (see PERG 13.6).
The question is also relevant to whether you can exercise passporting rights in relation to investment services or activities - only firms to which MiFID applies can do so.
Q2. Is there anything else we should be reading?
The Q and As complement, and should be read in conjunction with, the relevant legislation and the general guidance on regulated activities, which is in chapter 2 of our Perimeter Guidance manual (‘PERG’).
The Q and As relating to the CRD and the EU CRR (which allow the recast CAD to apply to certain firms)3 should be read in conjunction with the relevant parts of our Prudential sourcebook for Investment Firms (IFPRU), the Interim Prudential sourcebook for Investment Businesses (IPRU(INV)), the3 General Prudential sourcebook (‘GENPRU’) and the Prudential sourcebook for banks, building societies and investment firms (‘BIPRU’).
Q3. How much can we rely on these Q and As?
The answers given in these Q and As represent the FCA's views but the interpretation of financial services legislation is ultimately a matter for the courts. How the scope of MiFID and the CRD and the EU CRR 3 affect the regulatory position of any particular person will depend on his individual circumstances. If you have doubts about your position after reading these Q and As, you may wish to seek legal advice. The Q and As are not a substitute for reading the relevant provisions in MiFID, the CRD and the EU CRR (and the recast CAD for certain firms)3, the MiFID implementing measures and The Treasury’s implementing legislation, including the statutory instruments listed in Annex 4 (‘Principal Statutory Instruments relating to MiFID scope issues’).
Moreover, although MiFID and the CRD and the EU CRR3 set out most of the key provisions and definitions relating to scope, some provisions may be subject to further legislation by the European Commission. In addition to FCA guidance, MiFID’s scope provisions may also be the subject of guidance or communications by the European Commission or the European Securities and Markets Authority (‘ESMA’) 3 . Similarly, the CRD and the EU CRR provisions may be the subject of technical standards and3 guidance or communications by the European Commission or the European Banking Authority (‘EBA’).
Q4. We provide investment services to our clients - does MiFID apply to us?
Yes if you are:
- • an “investment firm” and the exemptions in MiFID do not apply to you; or
- • a “tied agent” as defined by MiFID.
If you are a non-EEA firm, for example the UK branch of a US firm, MiFID does not apply to you. However, if MiFID would have applied to you if you had been incorporated or formed in the EEA, you will be a third country investment firm under the FCA's rules. As a result, certain MiFID based requirements will apply to you.
See the flow charts in Annex 1 for further information and PERG 13.5 for guidance relating to exemptions. See Q7 and 8 for guidance on whether you are an investment firm and Q11 for guidance relating to tied agents.
Q5. We are a credit institution. How does MiFID apply to us?
If you are an EEA credit institution, article 1.2 MiFID provides that selected MiFID provisions apply to you, including organisational and conduct of business requirements, when you are providing investment services to your clients or performing investment activities. In our view, MiFID will apply when you are providing ancillary services in conjunction with investment services. Where you provide ancillary services on a standalone basis, MiFID will not apply in relation to those services. Article 1.2 MiFID is reflected in paragraph (2) of the Handbook definition of “MiFID investment firm”.
Q6. We are a UCITS management company that, in addition to managing unit trusts, contractual schemes and investment companies, provides portfolio management services to third parties. How does MiFID apply to us?2
If you are the management company1of a UCITS scheme with a permission to manage investments including MiFID financial instruments pursuant to article 6.3 of the1 UCITS Directive, certain MiFID provisions apply to you when you provide investment services to third parties (see article 6.41 UCITS Directive). These include initial capital endowment, organisational and conduct of business requirements. You are a UCITS investment firm for the purposes of the Handbook. Article 6.4 of the1 UCITS Directive is reflected in paragraph (3) of the Handbook definition of “MiFID investment firm”.
4Q6A. We are an AIFM that, in addition to managing AIFs, provides portfolio management services to third parties. How does MiFID apply to us?
If you are the AIFM of an AIF with a Part 4A permission to manage investments including MiFID financial instruments pursuant to article 6.4 of AIFMD, certain MiFID provisions apply to you when you provide investment services to third parties (see article 6.6 of AIFMD). These include initial capital endowment, organisational and conduct of business requirements. You are an AIFM investment firm for the purposes of the Handbook. Article 6.6 of AIFMD is reflected in paragraph (3) of the Handbook definition of "MiFID investment firm".
Q7. We provide investment services to our clients. How do we know whether we are an investment firm for the purposes of article 4.1(1) MiFID?
If your regular occupation or business includes the provision of investment services in relation to MiFID financial instruments to others on a professional basis, you are an investment firm and require authorisation unless you benefit from an exemption or are a tied agent (see Q11).
Where you are a firm with more than one business, you can still be an investment firm. We expect that the vast majority of firms which were subject to the requirements of the ISD are subject to MiFID requirements where they continue to provide the same investment services. We also expect some firms that were not subject to the ISD (for example, certain commodity dealers) to be investment firms for the purposes of MiFID and subject to MiFID based requirements. What amounts to a “professional basis” depends on the individual circumstances and in our view relevant factors will include the existence or otherwise of a commercial element and the scale of the relevant activity.
Q8. We do not provide investment services to others but we do buy and sell financial instruments (for example, shares and derivatives) on a regular basis. Are we an investment firm for the purposes of MiFID?
Yes, if you are trading in MiFID financial instruments for your own account as a regular occupation or business on a “professional basis”. You can be an investment firm even if you are not providing investment services to others; this is a change from the position under the ISD, arising from the fact that you are also an investment firm under MiFID where you perform investment activities on a professional basis.
Even if you are an investment firm you may still be able to rely on one or more exemptions in article 2 MiFID, in which case MiFID will not apply (see PERG 13.5 and in particular article 2.1(d) (see Q40 and Q41)), 2.1(i) (see Q44 and Q45) and 2.1(k) (see Q46).
Q9. We are a credit institution that does not provide investment services to customers but we do have a treasury function. Are we subject to MiFID?
Not necessarily. Although you may be dealing on own account in relation to MiFID financial instruments, you may be able to rely upon the exemption in article 2.1(d) MiFID (see Q40). In our view, credit institutions can rely on exemptions in article 2 where they meet the conditions of the exemptions.
Q10. Is there any change to the “by way of business” test in domestic legislation?
There is no change to article 3 of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001 as part of MiFID implementation by the Treasury, so the domestic test for whether you are carrying on 'regulated activities by way of business' and require authorisation remains unchanged.
Q11. How will we know whether we are a tied agent (article 4.1(25))?
A tied agent under MiFID is a similar concept to an appointed representative under the Act. A tied agent does not require authorisation for the purposes of MiFID, just as an appointed representative does not require authorisation under the Act. In our view, you will only be a tied agent if your principal is an investment firm (including a credit institution) to which MiFID applies. So, if you act for a principal that is subject to an exemption in either article 2 or 3 MiFID (as implemented by The Treasury - see Q48 and Q49), you are not a tied agent for the purposes of MiFID although you may be an appointed representative for domestic purposes. You will still not require authorisation under MiFID, either because you are not performing investment services and activities or, if you are, because you fall within an exemption in article 2 or 3 MiFID.
Assuming your principal is an investment firm to which MiFID applies, if you are registered as an appointed representative on the Financial Services Register and carry on the activities of arranging (bringing about) deals in investments or advising on investments, in either case in relation to MiFID financial instruments, you are likely to be a tied agent for the purposes of article 4.1(25).
It is possible for a UK representative to be a tied agent of an incoming EEA firm, in which case if the representative is established in the UK it will also be a branch of its principal. However, it is not possible for a tied agent to provide investment services on behalf of more than one investment firm to which MiFID applies.
Further material on appointed representatives and tied agents is contained in chapter 12 of our Supervision Manual (‘SUP’).3333333333211111