Removal of accounting and auditing exemptions for certain investment companies

Relevant to
Investment firms covered by MiFID. Typically this includes portfolio managers, stockbrokers and broker dealers, corporate finance firms, many futures and options firms and some commodities firms. Some of these firms may have been covered by the Investment Services Directive (ISD) and so will experience no change in this regard as they did not have the right to the accounting and auditing exemptions under the ISD. MiFID applies throughout the United Kingdom.

Took effect on
1 November 2007

From 1 November 2007, the EU Markets in Financial Instruments Directive (MiFID) will take effect. It will create a single European market for financial services. MiFID will extend the coverage of and replace the Investment Services Directive (ISD).

As MiFID extends the coverage of ISD to a wider range of firms, some additional types of small and medium-sized investment companies and limited liability partnerships - eg some specialist commodity firms -  will no longer have the right to accounting and auditing exemptions.

Investment firms not previously controlled under ISD, and newly brought within MiFID, will benefit from a transitional period. This means that the auditing requirement - where it is a new one - will only apply to financial years commencing on or after 1 November 2007.

Financial advisors who qualify for an exemption from MiFID - but have opted back into MiFID to use its passporting rights - may be able to continue to benefit from the exemptions. The right to continue using the auditing exemption could apply to businesses that meet all the criteria set out in MiFID and which:

• carry out restricted financial activities - eg receiving and transmitting orders and/or providing investment advice
• do not hold client money or securities and who are only permitted to transmit orders to certain prescribed recipients outside of the obligations of MiFID

Other MiFID regulations will introduce new and wider requirements. These relate to the business and internal organisation of firms in the financial and investments markets, with key changes for firms in client categorisation, best execution and suitability.

The Financial Services Authority (FSA) will begin a review of firms' implementation of MiFID in the first quarter of 2008.

• Browse the index of documents relevant to MiFID on the FSA website - Opens in a new window
• Browse the index of documents relevant to MiFID on the HM Treasury website - Opens in a new window
• Download the new conduct of business sourcebook - a guide for small firms within the scope of MiFID from the FSA website (PDF) - Opens in a new window

Full title of regulation
The Markets in Financial Instruments Directive (Consequential Amendments) Regulations 2007 [SI 2007 2932]; European Directive 2004/39/EC;

From
HM Treasury

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