FSA warns non-ISD firms to check if they fall under Mifid and CRD

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The UK Financial Services Authority (FSA) has issued guidance letters to CEOs (or equivalent) of non-ISD (Investment Services Directive) hybrid venture capital or corporate finance firms alerting them to the fact that they need to consider whether they fall within the scope of the Markets in Financial Instruments Directive (Mifid) and will therefore be subject to the requirements of the Capital Requirements Directive (CRD) from November 1, 2007.

Mifid covers a much wider area than the ISD and brings new activities into its scope including investment advice. As a consequence, corporate finance and venture capital firms that fall within the scope of Mifid because they provide investment advice may also be subject to the CRD.

Similarly, new prudential categories may apply to such firms if they intend to carry on Mifid business beyond the provision of investment advice and/or the reception and transmission of orders and/or if they are authorised to hold client money or assets in relation to Mifid business.

Exemptions may, however, be available. The FSA advises firms to take steps to determine whether or not they are subject to Mifid and their CRD category, and to complete an online form by June 21, 2007, confirming this to the FSA.

Alternatively, firms can apply for a ‘variation of permission’ by August 1, 2007, taking into account the new standard limitations and requirements.

If firms do not take the above steps, the FSA will categorise those firms from November 1, 2007, on the basis of what the firm could do under the terms of its current Part IV permission rather than what it actually does, which is likely to give rise to a higher capital requirement than expected.

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• Topics
• Capital Requirements Directive (CRD)
• Financial Services Authority (FSA)
• Mifid
• Risk management
• Regulation
• Operational risk