There are many reasons why a firm might wish to amend its status from Exempt CAD to Article 3.
Exempt CAD firms have usually opted into Mifid in order to passport their investment services into another EU member state, or to enable them to transmit orders in unregulated collective investment schemes to non-Mifid firms.
Article 3 investment firms are not active in these areas so do not have these permissions.
While both fall under the scope of Mifid II, Exempt CAD firms are required to meet a higher standard in certain areas such as call recording, training & competence and complaints handling. They also complete more frequent (quarterly) Gabriel returns and, in some cases, have a higher capital adequacy requirement.
How to opt out
If your firm has Mifid passports, these should be removed. You need to use the “passporting” section of the FCA Connect system for this. There is no FCA charge for this.
You should then complete a variation of permission. You do not need to wait for the passport application to be authorised. The VOP costs £250. In this application you simply amend the standard requirement section to say “Article 3 firm”.
Take action quickly if you need to opt out. The FCA processing timescale for VOPs is six months and varies between one to six months for passport removals. Exempt CAD systems and controls must be maintained until all FCA applications have been authorised.
Russell Facer is managing director of Threesixty