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The Financial Conduct Authority has called on asset managers to notify the regulator if they are struggling with the implementation of sweeping new European market rules that come into force on January 3.

“The thing I have least patience with is companies not telling me they have a problem,” said Megan Butler, director of supervision at the UK regulator. “We know Mifid II is difficult to implement.”

The regulation package known as Mifid II, a revamped version of the Markets in Financial Instruments Directive, is designed to offer greater protection for investors and more transparency in the market.

It covers virtually all aspects of trading within the EU. It will notably require fund managers to disclose how they pay for external research, and institutions will also have to report more information about trades they make.

Many asset managers are struggling to be ready in time, with one recent survey suggesting fewer than 10 per cent would be fully ready by the January deadline. Even some national regulators are struggling, and the European Commission, the EU’s executive arm, has launched infringement proceedings against 19 member states for failing to transpose Mifid II into local law.

Ms Butler added the FCA would refrain from adopting a draconian enforcement approach come early January. “I want to make it clear that we will take a sensible and proportionate approach to Mifid’s introduction,” she said.

In September the regulator indicated it was looking for evidence that financial companies had “taken sufficient steps to meet the new obligations” by January 3.

“As always, we intend to act proportionately. In this context, this means we will not take a strict liability approach, especially given the size, complexity and magnitude of the changes that are required to be in place,” said Mark Steward, the FCA’s executive director of enforcement and market oversight.

However, he warned that “our disposition is likely to be different where companies have made no real or genuine attempt to be ready, or where key obligations are deliberately flouted”.

One of the most debated areas of Mifid II is the requirement for asset managers to pay banks and brokers directly for analyst research instead of the current practice of combining the cost with trading commissions. The majority have opted to do so by explicitly passing the cost on to clients.

“The research question will continue to be a focus as we go through the implementation phase,” Ms Butler said.

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