PROD 1.3 Application of PROD 3

General: Who? What?

PROD 1.3.1 R

1 PROD 3 applies to

  1. (1)

    a MiFID investment firm;

  2. (2)

    a CRD credit institution;

  3. (3)

    a MiFID optional exemption firm; and

  4. (4)

    branches of third country investment firms; with respect to:

  5. (5)

    manufacturing financial instruments and structured deposits; and

  6. (6)

    distributing financial instruments, structured deposits and investment services.

[Note: articles 1(3), 1(4), 16(3), 24(2) and 41(2) of MiFID]

Other firms manufacturing or distributing financial instruments or structured deposits

PROD 1.3.2 R

Other firms which manufacture or distribute financial instruments or structured deposits should take account of PROD 3 as if it were guidance on the Principles and other relevant rules and as if “should” appeared in PROD 3 rules instead of “must”.

Eligible counterparty business

PROD 1.3.3 R

PROD 3.3.1R does not apply to eligible counterparty business.

[Note: article 30(1) of MiFID]

Where?

PROD 1.3.4 R

PROD 3 applies to a firm with respect to activities carried on from an establishment maintained by it, or its appointed representative, in the United Kingdom.

PROD 1.3.5 R
  1. (1)

    PROD 3 also applies to a firm with respect to activities from an establishment overseas with a client in the United Kingdom.

  2. (2)

    But PROD 3 does not apply to those activities if the office from which the activity is carried on were a separate person and the activity:

    1. (a)

      would fall within the overseas persons exclusions in article 72 of the Regulated Activities Order; or

    2. (b)

      would not be regarded as being carried on in the United Kingdom.

EEA territorial scope rule: compatibility with European law

PROD 1.3.6 R
  1. (1)

    The territorial scope of this sourcebook is modified to the extent necessary to be compatible with European law (see PROD 1.3.7G to PROD 1.3.10G for guidance on this).

  2. (2)

    This rule overrides every other rule in this sourcebook.

Effects of the EEA territorial scope rule

PROD 1.3.7 G

One of the effects of PROD 1.3.6R is to override the application of this sourcebook to the overseas establishments of EEA firms in circumstances covered by MiFID.

PROD 1.3.8 G

The guidance in this chapter provides a general overview only and is not comprehensive.

PROD 1.3.9 G

When considering the impact of a directive on the territorial application of a rule, a firm will first need to consider whether the relevant situation involves a non-UK element. PROD 1.3.6R is unlikely to apply if a UK firm is doing business in a UK establishment for a client located in the United Kingdom in relation to a UK product, in other words PROD 3 will apply to the UK firm. However, if there is a non-UK element, the firm should consider whether:

  1. (1)

    it is subject to the directive (in general, directives only apply to UK firms and EEA firms, but the implementing provisions may not treat non-EEA firms more favourably than EEA firms);

  2. (2)

    the business it is performing is subject to the directive; and

  3. (3)

    the particular rule is within the scope of the directive.

If the answer to all three questions is ‘yes’, PROD 1.3.6R may change the application of the rules in this sourcebook.

PROD 1.3.10 G

When considering a particular situation, a firm should also consider whether two or more directives apply.

MiFID: effect on territorial scope

PROD 1.3.11 G

PERG 13 contains general guidance on the persons and businesses to which MiFID applies.

PROD 1.3.12 G

For a UKMiFID investment firm, rules in this sourcebook that are within the scope of MiFID generally apply to its MiFID business carried on from an establishment in the United Kingdom. They also generally apply to its MiFID business carried on from an establishment in another EEA State, although in the case of rules that implement article 24(2) MiFID only where that business is not carried on within the territory of that EEA State. Where a MiFID investment firm carries on MiFID business from a branch in another EEA State, organisational requirements, including rules implementing product manufacture obligations under article 16 MiFID are home state requirements and therefore FCA responsibility (see SUP 13A Annex 1G).

[Note: see articles 34(1) and 35(1) and (8) of MiFID]

PROD 1.3.13 G

For an EEA MiFID investment firm, rules in this sourcebook that are within the scope of MiFID generally apply only to its MiFID business if that business is carried on from an establishment in, and within the territory of, the United Kingdom and only to the extent that the rules implement article 24(2) of MiFID.

[Note: see articles 35(1) and (8) of MiFID]

Electronic Commerce Directive: effect on territorial scope

PROD 1.3.14 G

The guidance on the Electronic Commerce Directive in COBS 1 Annex 1, Part 3, paragraph 7 applies equally in relation to the rules in PROD 3.

Interaction of PROD 3 and the RPPD Guide

PROD 1.3.15 G

A firm to which PROD 3 applies need not apply the guidance in RPPD for matters covered by PROD if the firm has complied with PROD 3.