FSA Recognises Industry Guidance On MiFID

by Robin Pilgrim, LawAndTax-News.com, London

18 May 2007

The UK's Financial Services Authority (FSA) on Wednesday confirmed that its supervision of outsourcing by firms will in future take account of industry guidance which has been issued by MiFID Connect.

MiFID Connect is a joint project set up by 11 trade associations to support their members in implementing the Directive.

This is the first guidance developed by industry which the FSA has recognised since publishing its Discussion Paper 'FSA confirmation of Industry Guidance' in November 2006, and the first formal Industry Guidance related to the Markets in Financial Instruments Directive.

The guidance covers so-called 'common platform' FSA firms - those subject to MiFID and/or the Capital Requirements Directive. The MiFID-driven FSA outsourcing rules will operate from 1 November 2007.

These include that a common platform firm must, when relying on a third party for the performance of operational functions which are critical for the performance of regulated activities, listed activities or ancillary services on a continuous and satisfactory basis, ensure that it takes reasonable steps to avoid undue additional operational risk; must not undertake the outsourcing of important operational functions in such a way as to impair materially the quality of its internal control and the ability of the FSA to monitor the firm's compliance with all obligations under the regulatory system and, if different, of a competent authority to monitor the firm's compliance with all obligations under MiFID

Michael Folger, FSA Director of Wholesale and Prudential Policy, announced that:

"We stressed in our paper last month on Principles-based Regulation that industry guidance will play a key role in helping firms determine how best to meet our expectations in the new regulatory environment. We think it right to proactively confirm this MiFID Connect guidance now ahead of our formal response later this year to the comments we have received on the industry guidance Discussion Paper. It will help common platform firms ensure their existing outsourcing arrangements will meet the FSA new requirements from 1 November 2007, when MiFID comes into effect. Firms need to start checking their approach now as MiFID does not exempt existing outsourcing arrangements."

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