In CASS 7 there are references to rules that apply to a MiFID business and those that carry out designated investment business which are not MiFID businesses. CASS 7.10.1 sets out that CASS 7 applies with regards to the following firms:
- MiFID business; and/or
- designated investment business; and/or
- stocks and shares ISA business; and/or
- innovative finance ISA business; and/or
- lifetime ISA business.
It is important to be clear whether a company carries out MiFID business, one that does will not be eligible for small company exemptions under the Companies Act and by extension will not be exempt from the requirement to obtain a statutory audit.
When is an investment business a MiFID business?
A MiFID firm is one that is:
- An investment firm with its head office in the UK; or
- A CRD credit firm providing investment services; or
- A collective portfolio management investment firm.
In this context an investment firm is defined as:
‘Any person whose regular occupation or business is the provision of one or more investment services (listed below) to third parties and/or the performance of one or more investment activities on a professional basis.’
What do Investment services include?
- Reception and transmission of orders in relation to one or more financial instruments.
- Execution of orders on behalf of clients.
- Dealing on own account.
- Portfolio management.
- the making of a personal recommendation.
- Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis.
- Placing of financial instruments without a firm commitment basis.
- Operation of an MTF (Multilateral trading facility)
- Operation of an OTF (Organised trading facility)
A collective portfolio management investment firm would include sub-threshold and full scope AIFMs that are authorised to conduct MiFID investment services (per the list above).
What should you consider?
Consider permissions with FCA
The key takeaway here is that firms must carefully consider the permissions they have with the FCA and which of these they actually require.
May require statutory audit or financial statements
If a firm is providing any of the investment services above (or has permission do so) they are likely to require a statutory audit and to prepare full FRS 102 financial statements, both of which involve significantly more work (and therefore cost) than if they were not a MiFID firm.
A financial services compliance consultant can assist with reviewing permissions to ensure that the correct ones are in place and confirming the requirements that these place on a firm.
For further information, or to discuss your specific circumstances, please contact our Audit and Compliance team or via the below contact form.
Whilst the above is intended to reflect what is included in the FCA Handbook, reading this is not a substitute for reading the Handbook itself and cannot be relied upon in assessing whether the rules covered have been correctly interpreted and followed. Please always ensure the appropriate professional advice is obtained to ensure compliance. The FCA Handbook contains the detailed rules and can be accessed here. This information is correct as at the 5thDecember 2022.