The Financial Services and Markets Act 2000 (Markets in Financial Instruments) (Modification of Powers) Regulations 2006

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations implement in part Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments (OJ No L 145, 30.4.2004, p.1) (“MiFID”). MiFID will also be implemented by the Financial Services Authority (“FSA”) using powers under the Financial Services and Markets Act 2000 (c. 8) (“the Act”) and by other statutory instruments which the Treasury propose to lay before Parliament over the next few months. The Regulations make the following amendments to the Act.

Section 138 of the Act (FSA’s general rule-making power) is amended to enable the FSA to make rules applying to authorised persons who are investment firms (within the meaning of MiFID) with respect to their provision of the ancillary services listed in Section B of Annex I to MiFID which are not regulated activities for the purposes of the Act.

It is intended that the provisions of paragraphs 1 to 8 of Article 19 of MiFID, and of measures made under paragraph 10 of that Article, will be implemented by rules made by the FSA under the power in section 145 of the Act (financial promotion rules). The amendments to section 145 made by these Regulations remove a limitation on the power so that the FSA is able to make rules to implement the provisions in all the circumstances required by the Article.

New section 158A is inserted which transposes the duty in article 15(3) of Commission Directive 2006/73/EC implementing MiFID (OJ No L 241, 2.9.2006, p.26) by placing a duty on the FSA to give guidance on outsourcing by investment firms and credit institutions. The Regulations also make minor consequential amendments to section 159 of, and Schedule 1 to, the Act.

Section 286 of the Act (the Treasury’s power to make regulations setting out the recognition requirements for investment exchanges and clearing houses) is amended. Where regulations under section 286 require investment exchanges to make information available to the public in accordance with Articles 29, 30, 44 and 45 of MiFID, the regulations may authorise the FSA to waive or defer those publication requirements in accordance with those Articles and Commission Regulation 1287/2006 implementing MiFID (OJ No L 241, 2.9.2006, p.1).

Section 292(3)(a) of the Act (overseas investment exchanges and overseas clearing houses) requires that overseas investment exchanges and clearing houses afford equivalent protection to investors as would be afforded if they were required to comply with the recognition requirements. Section 292(3)(a) is amended to enable provision in regulations under section 286 of the Act not to be applicable in the case of an overseas investment exchange or clearing house. This allows the Treasury, in regulations implementing MiFID, to specify that particular provisions do not apply in the case of overseas bodies.

Definitions of “investment firm” and “markets in financial instruments directive”, applying for the purposes of the Act, are inserted into the Act. The Regulations also make transitional provision.

The Treasury will prepare a transposition note which sets out how the main elements of MiFID will be transposed into UK law and a Regulatory Impact Assessment of the effect of the instruments transposing MiFID on the costs of business when the remainder of the legislation transposing MiFID is laid before Parliament. These will be available to be obtained from the Financial Services Strategy Team, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ, and will also be available on HM Treasury’s website (www.hm-treasury.gov.uk). Copies of both documents will be placed in the libraries of both Houses of Parliament.