MiFID II fee proposals – how will they impact you?
Feedback on the FCA’s fee proposals to recover the costs of submitting data under MiFID II is expected to be released shortly.
The consultation began in November and finished early last month. The proposals may have slipped notice however the fees will need to be included in the budgeting process going forward and may significantly impact smaller commodity derivative trading firms and firms that are (or are considering) becoming operators of a trading venue. The proposals are summarised below and will be of interest for firms that will operate an MTF, OTF or a regulated market under MiFID II as well as firms executing commodity derivatives or acting as a systematic internaliser.
More transactions, higher fees
Whilst the costs are not excessive, if firms submit reports directly to the FCA the costs are likely to be prohibitive for smaller firms pointing to the need for intermediaries such as Approved Reporting Mechanisms (ARMs) to aggregate submissions, particularly for commodity position reporting. The consultation paper doesn’t provide any hint as to the ongoing maintenance and administration costs to run the service but this is likely to be substantial. The consultation proposes that these costs are raised from the ‘relevant firms that benefit from effective market reporting’. It is not clear what they mean by this but I suspect they are referring to a per report fee that will be levied on the firms for which the report has been made. So that means the more transactions, the higher the fees.
Data Reporting Service Providers
MiFID II creates a new type of entity called the Data Reporting Service Provider (DRSP). This category encompasses ARMS, Approved Publication Arrangements (APAs) and Consolidated Tape Providers (CTPs). Each of these entities require authorisation by a competent authority under the DRSP regulations but in addition, as they have to submit data to the competent authorities, they need to connect to the competent authority’s systems.
To capture this data the FCA is looking to appoint a Market Data Processor (MDP) who will manage the connectivity and processing of the above data. The costs of the MDP, authorisations and ongoing supervisory activities have to be recovered. The FCA’s fee consultation paper sets out their proposals in this regard.
FCA application fees
There is a separate fee structure proposed for DRSPs (ARMs, APAs and CTPs) as they are regulated outside of FSMA (The Financial Services and Markets Act). The DRSP fees will not apply to entities that are “incoming” DRSPs. Incoming DRSPs are ARMs, APAs and CTPs that are authorised in another EU jurisdiction. Incoming DRSPs will have to contribute to the costs of connecting to the FCA’s systems but will not face application fees.
Investment firms providing DRSP services will incur the DRSP fees in addition to their FSMA fees. Such applications will not be treated as variation of their existing permissions but as full applications as it is under a separate regime.
FCA periodic fees
Periodic fees have been proposed as a new G25 fee block for DRSPs. Rates will be confirmed once the FCA’s costs are better known. The periodic fees apply for the first quarter pre MiFID go-live as a flat rate fee of £20-30k for each authorised DRSP. Where the DRSP is authorised for more than one category, e.g. as an ARM and an APA, the proposal is an additional 50% of the periodic fee for each additional DRSP category.
The tables below set out the proposed fee structure. If the fees collected fall below the costs incurred overall by the FCA then the difference will be collected via periodic fees.
FCA DRSP fees
FCA data submitter on-boarding fees.
Only one connectivity/on-boarding fee would be applicable for the MDP. So if a firm is connected for transaction report submissions they would not have any additional on-boarding fee for other data types.
FCA ongoing transactional fees
It is not clear how the regulator’s ongoing costs of operating the reporting system will be recovered but we anticipate that there will be a fee per transaction report made. This could be levied directly on the parties submitting to the FCA, principally the ARMs and trading venues and if so, these parties are likely to pass through these costs to their clients, the reporting firms.
*subject to change