FCA clarifies limits of MiFID II commission payments regime

FCA’s final rules on MiFID II revealed which services are considered execution-related and a relaxation of RPA management.

The industry gained clarification on MiFID II’s unbundling and commission payment regime this week, with a relaxation of research payment account (RPA) management.

The UK’s Financial Conduct Authority (FCA) outlined its final rules on MiFID II implementation and clarified which services are considered execution-related under the rules.

It said “activities inherent to facilitating an order and that take place between the point at which an order is received and executed by a firm, and the final settlement” are considered inherent to the execution process.”

Therefore, transaction reporting services offered by a broker as part of the execution service provided to clients - as long as the service does not influence best execution - would be accepted under MiFID II. Such a service should be offered on a standard basis to all clients.

“We view this as consistent with the nature of the execution service, which should generally result in a transaction that is settled and reported as necessary in line with regulatory requirements to the benefit of the client,” the FCA said.

Other services not considered inextricably linked to the execution process include third-party trade analytic tools, order management systems or RPA administration.

“Firms subject to the enhanced inducements restrictions would need to procure such services separately using their own resources, and could not pay for them through enhanced execution costs or research charges passed to their clients,” it added.

RPA administration has also been relaxed under the final rules. The FCA said firms would be able to charge reductions for research passed into RPA within 30 days from a transaction taking place.

“We view this approach provides certainty for firms as to what our minimum expectations are, which aligns with current industry good practice where firms are using CSAs,” the regulator said.

For firms using third-party research providers, the FCA reiterated payments must be made from a set budget subject to management control and assessments of the quality of the research.

More to follow….