11. Perimeter Guidance (PERG)

11. Perimeter Guidance (PERG)

Who should read this chapter?

Regulated and unregulated firms, and individuals performing investment services and activities.



MiFID II imposes an array of scope changes. As well as the creation of a new investment service for operating an OTF, it creates a new financial instrument category of emission allowances. MiFID II also introduces changes to the scope of existing investment services and activities, financial instruments and exemptions. New definitions include those for dealing on own account, for execution of client orders and for miscellaneous categories of derivatives. It narrows existing exemptions, particularly in relation to business involving commodity derivatives. Although structured deposits are not financial instruments for the purposes of MiFID II scope, the extension of conduct requirements to banks and investment firms selling and advising on them has necessitated changes to the Regulated Activity Order (RAO) and created a need for related perimeter guidance.

This Chapter explains the changes that we propose to make to PERG arising from the implementation of MiFID II. It covers the scope changes in the directive and the amendments to the RAO on which the Treasury consulted in March 2015.

We will issue a later consultation to address the issues relating to scope matters, which will be expanded on in the delegated acts. Therefore, in general, we have not covered matters relating to derivatives including foreign exchange and commodity derivatives. For similar reasons, we will address various questions about exemptions, including those in respect of professional firms and commodity business, at a later stage. For now, we only consult on changes to PERG 2 and 13, and further changes to the financial promotion regime will also form part of a further consultation in the first half of next year.

Existing provisions

For UK businesses, PERG 13 provides guidance on the scope of MiFID, the Capital Requirements directive (often referred to as CRD4) and the recast Capital Adequacy directive (2006/49/EC). The guidance was first issued in connection with the FSA’s transposition of MiFID. Since then, it has been updated to take account of EU legislative developments, such as CRD 4. PERG 2 contains guidance relating to the activities, investments and exclusions in the RAO that give effect to the corresponding MIFID investment services and activities, financial instruments and exemptions.


As a consequence of the scope changes imposed by MiFID II, we propose to issue guidance on various topics including the following: 

  • The new service of operating an OTF and the associated definition of multilateral system. 
  • The extension of the MiFID service of executing client orders to cover issuance of securities. We have also sought to explain why the issue of its own securities by an ordinary commercial company should not be within the MiFID perimeter.
  • We have included guidance to reflect the fact that the matched principal exclusion no longer applies to the MiFID dealing on own account definition, although it remains relevant for prudential capital purposes.
  • Structured deposits and how they fit into the MiFID and RAO perimeters.
  • Changes to the dealing on own account exemption from the MiFID perimeter.

MiFID provides for two types of trading venues, RMs and MTFs. The definitions of RM and MTF are very similar and hinge on a number of common elements. In essence RMs and MTFs are systems which operate in accordance with non-discretionary rules that bring together multiple buying and selling interests in a way that results in contracts.

In addition to establishing a new type of trading venue, the OTF, and in line with the objective of extending the regulatory perimeter of trading venues, MiFID II introduces a new definition of multilateral system which is common to any trading venue. article 4(19) of MiFID II specifies that a multilateral system is: […] any system or facility in which multiple third-party buying and selling trading interests in financial instruments are able to interact in the system.  We note that the new definition does not require the conclusion of contracts under the system’s rules but only that trading interest is able to interact in the system. 

The definition of multilateral system is complemented by an obligation set out in article 1(7) of MiFID II that requires all multilateral systems in financial instruments to operate as a RM, an MTF or an OTF (where permissible depending on the asset class). 

The combined effect of articles 4(19) and 1(7) is that the MiFID requirement that a contract is executed under the system’s rules by means of the system’s protocols is now a sufficient but not necessary condition to be a multilateral system and hence to be regulated as a trading venue. Instead it is required that trading interest is able to interact in the system.  It is our view that the new definition is broader than the existing one and that the condition for trading interests to interact in the system is less stringent than; that a contract is executed under the system’s rules, or by means of the system’s protocols or internal operating procedures.

We are of the view that interaction in a system or facility occurs when the system or facility allows multiple trading interests to exchange information relevant to any of the essential terms of a transaction in financial instruments (being the price, quantity and subject-matter) with a view to dealing in such instruments.  The information exchanged need not be complete contractual offers, but may be simply invitations to treat or 'indications of interest'. 

At a minimum, therefore, a platform will be considered a multilateral system (and hence must operate as a RM, MTF, or OTF in accordance with article 1(7) of MiFID II) if the system provides the ability for trading interests to interact with a view to dealing and: 

  • allows multiple participants to see such information about trading interest in financial instruments, or submit such information about trading interest in financial instruments for matching, and
  • enables them, through technical systems or other facilities, to take steps to initiate a transaction, or be informed of a match

A system that provides participants confirmation or notification messages about a matching opportunity between those participants, with a view to a transaction in financial instruments, qualifies as such a system or facility.

Finally it should be noted that recital 8 of MiFIR clarifies that an OTF should not include facilities where there is no genuine interaction of trading interest, such as bulletin boards used for advertising buying and selling interests, other entities aggregating or pooling potential buying or selling interests, electronic post-trade confirmation services, or portfolio compression.  Any system that only receives, pools, aggregates and broadcasts indications of interest, bids and offers or prices shall not be considered a multilateral system for the purpose of MiFID II.  This is because there is no reaction of one trading interest to another other within these systems - they do not 'act reciprocally'.

Given that the focus of PERG is to describe when someone needs authorisation under the Act, we propose to remove PERG 13.6 (CRD IV and CAD) in due course. However, because this material has been found to be useful, we do not propose to delete it but rather to move it to a more suitable location for those wishing to seek guidance on their prudential categorisation. As we have not settled on the timing for doing this, we thought it would be useful to include, for the purposes of the current consultation, the changes to this material that we think are required by MiFID II. 

We are not proposing to include guidance on which DRSPs are required to be regulated under MiFID II. Firms carrying on this business are not required to be authorised under FSMA and are subject to other procedures and non-FSMA requirements, described in MAR 9. 

The draft PERG guidance focuses on questions that are likely to be of wide relevance, and we have updated existing flowcharts and tables in the annexes to PERG 13. We propose to update these further when the delegated acts are published.

Implications for firms

Firms may wish to refer to the guidance when they are considering whether MiFID II requires them to seek new permissions and passports due to its changes in scope. If the business of a UK firm is to provide investment services and activities within the scope of MiFID II, the firm will need to be either authorised with the appropriate Part 4A permission or exempt (e.g. because it is an appointed representative). 

Implications for consumers

The purpose of PERG is to describe when someone needs authorisation under FSMA and is not of direct relevance to consumers. However, our proposed guidance may help investors to guard against dealing with people who are not regulated when they should be. We intend to make the guidance clearer on the circumstances in which MiFID II applies, and when authorisation is needed.


Since MiFID, there has been increasing harmonisation of EU legislative requirements in relation to investment business, as evidenced by MiFID II itself. The creation of the European Supervisory Agencies (ESAs) and the issuing of technical standards and ESA guidelines have further deepened the process of regulatory and supervisory convergence.

In our view, none of these developments diminishes the case for guidance by national regulators on scope issues. For FSMA, the need for clarity and certainty on the scope of regulation remains as important as ever, particularly given the potential criminal and civil consequences of acting in breach of the general prohibition. 


The existing guidance on the scope of MiFID is in chapter 13 of PERG. Guidance on the corresponding RAO activities, specified investments and exclusions are set out in chapter 2 of PERG.

The feedback statement to the original perimeter guidance in relation to MiFID is set out in FSA PS 07/5

The scope provisions in MiFID II on which we propose to provide guidance are contained in Title I MiFID II.

Q27: Do you agree with our proposal to continue to offer perimeter guidance in relation to the scope of EU legislation by updating PERG 13? If not, please give reasons why 

Q28: Do you agree with our interpretation of the definition of a multilateral system? If not, please give reasons why