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MiFID - FSA confirms guidance on outsourcing

17 May 2007
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Yesterday, the Financial Services Authority (FSA) confirmed that its application of the European Union's MiFID rules in its supervision of outsourcing by firms will be based on the interpretation and guidance of the MiFID Connect group.

This is the first guidance developed by industry which the FSA has recognised since publishing its Discussion Paper, FSA confirmation of Industry Guidance, last year, and the first formal Industry Guidance related to MiFID. The MiFID Connect guidance covers the 'common platform' FSA firms - those subject to MiFID and/or the Capital Requirements Directive (Basel II). The FSA collaborated with MiFID Connect on its outsourcing guidance which is intended to strike a balance between legal interpretation and practical examples.

Michael Folger, FSA Director of Wholesale and Prudential Policy, said: "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's 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."

MiFID Connect is a collaboration of 11 trade associations to advise their members in implementing MiFID. Members are The Association of British Insurers (ABI), The Association of Private Client Investment Managers and Stockbrokers (APCIMS), Association of Foreign Banks (AFB), The Bond Market Association, the British Bankers' Association (BBA), Building Societies Association (BSA), the Futures and Options Association (FOA), The International Capital Market Association (ICMA), Investment Management Association (IMA), The International Swaps and Derivatives Association (ISDA) and the London Investment Banking Association (LIBA).

This confirmation is in line with the FSA's thinking on principles-based regulation. Last year, when releasing the above-mentioned discussion paper, FSA General Counsel Andrew Whittaker said: "These proposals will contribute towards more principles-based regulation by allowing us to focus on the main principles to be achieved, rather than the detail of how to comply with them. They will give firms guidance on ways of complying with FSA principles and rules, but in a way that should stimulate flexibility and innovation in meeting higher level standards."


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