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Markets in Financial Instruments Directive II implementation - Consultation Paper III, Response

The Markets in Financial Instruments Directive II (MiFID II) is a package of EU legislation, introduced in 2014, which regulates both retail and wholesale investment business in the UK. The aim of the MiFID legislation is to strengthen protection for investors. In this case investors includes local authorities and local authority pension funds. Under the proposals, pension fund authorities are treated as a separate investor from the authority that hosts them.


On the 29 September 2016 the Financial Conduct Authority (FCA), published a consultation on how the legislation will be implemented in the UK. There are some proposals in the consultation which go far beyond the basic legislation and therefore should be seen as discretionary for the UK. The proposals would reclassify the status of local authorities and this will have a major impact on the ability of local authorities to invest in financial instruments other than (in many cases) basic bank deposits, despite the fact that local authorities in the UK have a robust track record of effective risk management with regard to investment and in respect of their pension funds considerable experience across a wide range of asset classes.

This response comments on the issues that directly affect local authorities. The consultation closed on 4 January 2017.