The following posts provide a snapshot of selected UK, EU and global wholesale financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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UK Conduct Regulator Proposes Payment Optionality for Investment Research
04/11/2024
The U.K. Financial Conduct Authority has opened a consultation setting out proposals for allowing firms to use joint (bundled) payments for third-party research and execution services, subject to certain requirements being met. The proposals follow the recommendations made by the U.K. Investment Research Review in July last year, and which both the U.K. government and FCA accepted. This also follows the removal by the U.S. Securities and Exchange Commission of its temporary exemption on the need for U.S. firms to register as investment advisors if they sell research separately from execution. Responses to the consultation may be submitted until June 5, 2024. Depending on the scope of feedback received, the FCA is aiming to publish its final rules or guidance by the end of June 2024.
The FCA is proposing to introduce a new option that facilitates bundled payments for third-party research and execution services. The new option would be available alongside the existing methods of a firm making direct payments out of its own resources or from a separate research payment account.
Firms that opt to make bundled payments will need to satisfy certain conditions.
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EU MiFID II Review Package Published
04/04/2024
On March 8, 2024, legislation amending the EU's Markets in Financial Instruments Directive and Regulation were published in the Official Journal of the European Union. The amending Directive and amending Regulation aim to enhance the availability of information on trading and companies for investors. Some of the proposed changes are similar to those that the U.K. has made or is contemplating making as part of the Wholesale Markets Review.
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UK Data Reporting Services Regulations 2024 Published
02/19/2024
On January 29, 2024, the Data Reporting Services Regulations 2024 (SI 2024/107) were made. The Data Reporting Services Regulations 2024 will enter into force on the same day that the Data Reporting Services Regulations 2017 are revoked, which is April 5, 2024, according to the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023. The Data Reporting Services Regulations 2024 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content.
The Financial Services and Markets Act 2023 granted the FCA power to make rules for data reporting service providers (DRSPs), of which there are three types- Approved Publication Arrangements, Approved Reporting Mechanisms and Consolidated Tape Providers. DRSPs generally facilitate compliance by investment firms of their regulatory reporting obligations, ensuring that market data is accessible and supporting effective price formation and best execution.
The Data Reporting Services Regulations 2024 set the regulatory perimeter of the U.K.'s regime for DRSPs, set out the authorization regime for providing a data reporting service, and restate the FCA's supervisory and enforcement powers. The FCA is also given powers to run a tender process to select U.K. CTPs for a particular asset class. No CTP is yet established in the U.K. or the EU. The FCA published its final framework for a consolidated tape for bonds in December 2023, and the tender process for the bond CTP will progress through 2024. -
Fourth Commencement Regulations Under Financial Services and Markets Act 2023 Published
01/18/2024
The Fourth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 - under the Financial Services and Markets Act 2023 were made on December 14, 2023. The Fourth Commencement Regulations provide, among other things, for:- The repeal of HM Treasury’s obligation to review legislation in various financial services legislation, including but not limited to, the Short Selling Regulation, the Securitization Regulation, the Alternative Investment Fund Managers Regulations and the U.K. version of the European Market Infrastructure Regulation. These repeals took effect on December 15, 2023.
- The revocation from April 5, 2024 of the Data Reporting Services Regulations 2017 and related implementing legislation such as (i) the provisions in the onshored Markets in Financial Instruments Regulations that provide HM Treasury and the regulators with powers to specify further detail relating to data reporting services; and (ii) the provisions in the MiFIR Delegated Regulation on the provision of data on reasonable commercial basis. The revocation of these provisions on this date aligns with HM Treasury's aim of the draft Data Reporting Services Regulations 2023 entering into force on April 5, 2024. The draft Data Reporting Services Regulations 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The FCA has confirmed the final framework for a consolidated tape for bonds, which will also enter into force on April 5, 2024.
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UK Conduct Regulator Consults on Bond and Derivatives Markets Transparency Requirements
01/08/2024
The U.K. Financial Conduct Authority has opened a consultation on proposals for improving transparency for bond and derivatives markets. Following the Wholesale Markets Review, the Financial Services and Markets Act 2023 grants powers to the FCA to make rules which will replace the current pre-trade and post-trade disclosure rules for bonds, structured finance products, emission allowances and derivatives set out in the U.K. Markets in Financial Instruments Regulation. The FCA's rules must ensure efficient price formation and the fair evaluation of financial assets. This consultation sets out the FCA's proposed approach to those rules. Responses to the FCA's consultation may be submitted until March 6, 2024.
The FCA is proposing that trading venues and investment firms dealing OTC will be subject to minimum harmonized transparency requirements for sovereign bonds, corporate bonds and certain derivatives subject to the clearing obligation. For these financial instruments, there will be large in scale thresholds. Pre-transparency waivers will be available for orders above the threshold and deferrals for post-trade requirements. For other financial instruments, the FCA is proposing to set the standards and criteria to which trading venues should refer in order to meet the FCA's transparency expectations. Investment firms dealing in other financial instruments will not be required to report their transactions to the public.
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UK Finalizes Framework for Consolidated Tape for Bonds
01/08/2024
Following its consultation last year, the U.K. Financial Conduct Authority has published its final framework for a consolidated tape for bonds. MiFID II introduced requirements for a CT for transactions in equity and non-equity instruments. It requires a consolidated tape provider to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public. No consolidated tape has yet been set up in either the U.K. or the EU. The Financial Services and Markets Act 2023 gave the FCA rule-making powers for Data Reporting Service Providers, enabling it to set a framework for the development of a CT.
The FCA's policy statement sets out its rules and guidance on the bond CT, which are due to come into force on April 5, 2024, which is the anticipated date that the draft Data Reporting Services Regulations 2023 are expected to enter into force, subject to Parliamentary process. The DRSRs 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The tender process for the bond CTP will kick-off in 2024.
The FCA's final policy is set out in a paper that also gives the FCA's response to feedback on a CT for equities and sets out proposals on payments to data providers by the bond CTP and forms for a Data Reporting Service Provider, adapted to reflect the DRSRs 2023 and the FCA's Handbook amendments. Responses to the FCA's proposals may be submitted until February 9, 2024. The FCA is aiming to finalize those rules and forms for April 5, 2024 too. -
UK Statutory Instrument Made to Ensure Legislation Remains Consistent with Latest Repeals
01/08/2024
The Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023 make consequential amendments to various pieces of legislation arising from the repeal by the Financial Services and Markets Act 2023 of certain retained EU financial services laws. The Regulations took effect on January 1, 2024. The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 provided for the repeal of 98 statutory instruments on August 29, 2023, and further revocations from January 1, 2024, including the European Long-Term Investment Funds Regulation (and related SI and tertiary legislation) and a provision from the Capital Requirements Regulation so as to allow the Bank of England more flexibility to set internal Minimum Requirements for Own Funds and Eligible Liabilities for U.K. subsidiaries of non-U.K. global systemically important banks. These latest Regulations make consequential amendments to ensure that legislation remains consistent with the January 2024 repeals.
Consequential amendments are also made to account for the removal of the double volume cap from the U.K.'s Markets in Financial Instruments regime. The DVC limited the level of dark trading to a certain proportion of total trading in an equity. Instead, the Financial Conduct Authority must monitor trading and has new powers to direct that transparency waivers should be suspended if the ongoing use of the waiver would impact market integrity. In addition, consequential amendments are made following the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 which amended payments-related REUL.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Funds, MiFID II, Payment Services -
UK Regulator Consults on Proposed Reforms to the Commodity Derivatives Regulatory Framework
12/08/2023
The U.K. Financial Conduct Authority has launched a consultation on proposals for reforming the commodity derivatives regulatory framework, which covers position limits, the exemptions from those limits, position management controls, the reporting regime and the ancillary activities test. Responses to the consultation may be submitted until February 16, 2024.
The Financial Services and Markets Act 2023 has already made several reforms to the U.K.'s commodity derivatives regulatory regime. The MiFID II requirement for commodities position limits to be applied to all exchange-traded contracts and over-the-counter, or non-venue traded ("OTC"), contracts that are economically equivalent to exchange-traded commodity derivatives was revoked. Instead, the FCA will decide the scope of the commodity derivates to which position limits will apply. In addition, the powers for setting position controls were transferred from the FCA to the operators of trading venues. This contrasts with the EU approach, where position limits are not just set by the regulators, but actually in formulae in legislation, which have proven ill-thought-through and problematic for numerous markets. The FCA has retained the power to set position limits if certain conditions are satisfied, and has new rulemaking powers to establish how trading venues should set and apply position limits and what position management controls they should operate. Generally, the reversion of position limit controls to exchanges as self-regulatory organisations reflects the U.K.'s status quo ante, i.e., prior to MiFID II.
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HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation
11/03/2023
HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:- Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
- Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
- Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, MiFID II, Payment Services -
UK Regulatory Guidance on Trading Venue Regulatory Perimeter
08/04/2023
The U.K. Financial Conduct Authority has issued final guidance to clarify the scope of the regulatory perimeter for trading venues and the regulatory approvals needed to conduct their business. The guidance caters for new platforms emerging from technological developments. The guidance is one of the outcomes of HM Treasury's Wholesale Markets Review (which we discuss in our client note, "UK Wholesale Markets Review"). Other aspects of the Review are being implemented through the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") or by amendments to FCA rules.
Read moreATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins, Elias Allahyari
TOPICS : Financial Market Infrastructure, MiFID II -
UK Regulator Proposes Framework for a Consolidated Tape
08/03/2023
On July 5, 2023, the U.K. Financial Conduct Authority launched a consultation on a proposed U.K. consolidated tape for bonds. MiFID II introduced requirements for a "consolidated tape" for transactions in equity and non-equity instruments. It requires a consolidated tape provider to collect post-trade information published by trading venues and approved publication arrangements and to consolidate this into a continuous live data stream made available to the public. No consolidated tape has yet been set up in either the U.K. or the EU. The EU announced at the end of June 2023 that political agreement had been reached on the proposals to introduce an EU consolidated tape.
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UK Investment Research Review Signifies Further EU-UK Divergence on Unbundling Research Rules
08/02/2023
The report and recommendations of the UK Investment Research Review were published on July 10, 2023. The recommendations have been accepted by the government and the Financial Conduct Authority has committed to prioritizing consulting on proposed rule changes with a view to revised rules applying in H1 2024.
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European Commission Publishes Retail Investment Strategy
06/05/2023
On May 24, 2023, the European Commission published a Retail Investment Strategy package aimed at enhancing retail investor protections across the EU and encouraging participation in the EU capital markets. The package comprises an amending Directive, which makes changes across a range of EU legislation, and an amending Regulation, which revises the EU's Packaged Retail and Insurance-based Investment Products Regulation.
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UK Ancillary Activities Test On Track For Simplification From 2025
05/18/2023
The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 was made on May 17, 2023. The Order, which enters into force on January 1, 2025, paves the way for the Financial Conduct Authority to develop a simpler test for determining which firms need to be authorized as investment firms as a result of their commodities and emission allowances trading business, known as the "ancillary activities test". The final Order is substantively the same as the draft SI, which we discuss in our related blog: "UK Government Publishes Draft Legislation Revising Application of The Ancillary Activities Test for Commodity Derivatives and Emission Allowances".
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UK Financial Conduct Authority Finalizes Improvements to Equity Secondary Markets
05/09/2023
On May 3, 2023, the U.K. Financial Conduct Authority published a Policy Statement on Improving Equity Secondary Markets, following its consultation last year. These changes are part of the response to the Wholesale Markets Review led by HM Treasury. Some of the changes from the WMR require legislative changes and are being progressed in the Financial Services and Markets Bill. We discuss these changes, and others proposed by the Bill in our client note, "UK Financial Services and Markets Bill". The changes that the FCA is bringing in do not require legislation or new powers for the FCA. The FCA confirms that it will consult this year and next on further reforms to the requirements for equity markets once the detailed firm-facing obligations are transferred to its Handbook.
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UK Investment Research Review Call for Evidence Published
04/05/2023
The U.K. Investment Research Review call for evidence was published on April 3, 2023. Relevant background to these issues is set out in our recent client note, “MiFID II: An Update on the Rules for Unbundling of Research,” in which we discussed the MiFID II requirements, the actions of the U.S. SEC, potential changes to the U.K. and EU MiFID II rules and the implications for broker-dealers that receive “hard dollars” for research. In summary, the research that investment managers typically receive from brokers is, under MiFID II, generally classified as a prohibited “inducement,” unless the investment manager pays for the research either: (a) directly from its own resources; (b) from a “Research Payment Account” (RPA) funded, with the client’s prior approval, with an advisory client’s money; or (c) a combination of the two methods. These requirements only apply directly to U.K.-regulated investment firms. However, brokers outside of the U.K. are affected by the legislation. Before the U.S. Securities and Exchange Commission granted exemptive relief, U.S. broker-dealers faced challenges because receiving MiFID II-compliant direct payments for research from U.K. investment managers would have amounted to accepting “hard dollar” payments, vitiating an important exclusion from being regulated as investment advisers.
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EU Opinion on Trading Venue Perimeter
04/03/2023
On February 2, 2023, the European Securities and Markets Authority published a final report and an Opinion on the trading venue perimeter. The Opinion clarifies the definition of multilateral systems under the EU's revised Markets in Financial Instruments Directive and sets out guidance on when systems should be considered as multilateral such that authorization as a trading venue would be required. In issuing the Opinion, ESMA is seeking to address the regulatory inconsistencies that have arisen because there is no EU-wide homogenous view as to what constitutes a multilateral system and to provide more certainty about when a system will be considered multilateral, and therefore should apply for authorization as a trading venue. The U.K.'s Financial Conduct Authority recently consulted on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA is expected to publish its final guidance in Q2 2023.
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UK Government Publishes Draft Legislation Revising Application of the Ancillary Activities Test for Commodity Derivatives and Emission Allowances
03/30/2023The U.K. government has published a draft statutory instrument (and related explanatory memorandum), which will be known as the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023. The draft SI will simplify the process for determining when a firm satisfies the “ancillary activities” test and reduce the burden on firms that apply the test. The changes were discussed under the Wholesale Markets Review and announced as part of the Edinburgh Reforms.
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UK Government Publishes its Proposals for Cryptoasset Regulation
02/14/2023
The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.
The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.
The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.
We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation". -
Edinburgh Reforms: Changes to the Laws of the UK Financial Services Sector
12/09/2022
The U.K. Government has announced on a series of initiatives, billed as the Edinburgh Reforms, to reform the laws for the U.K. financial services sector. The proposals cover:- Reforms to Ring-Fencing Regime;
- Implementation of Post-Brexit Financial Regulatory Framework;
- Growth and Competitiveness Remit for U.K. Regulators;
- Reforms to Wholesale Markets;
- Faster Settlement;
- Senior Manager's and Certification Regime;
- Changes to Promote Investment and Growth in Financial Services;
- Sustainable Finance;
- FinTech and Digital Assets; and
- Consumer Credit.
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UK Financial Conduct Authority Consults on Regulatory Perimeter Guidance for Trading Venues
09/22/2022
The U.K. Financial Conduct Authority has published a consultation paper on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA's consultation follows proposals made in HM Treasury's July 2021 U.K. Wholesale Markets Review, the response to which was published in March 2022. Responses to the FCA's consultation should be submitted by November 11, 2022. The FCA plans to finalize the draft guidance and publish a policy statement in Q2 2023.
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UK Government Publishes Financial Services and Markets Bill
07/20/2022
The U.K. government has published the much anticipated Financial Services and Markets Bill. Following its exit from the EU, the U.K. has undertaken a fundamental review of how financial regulation policy and rules should be made, reviewed and established in law, particularly in light of the return of the U.K.'s sovereignty. Furthermore, there has been a substantial assessment of the U.K.'s financial services rules and regulations, with some areas warranting further consideration. The Bill implements the outcomes of the Future Regulatory Framework Review, which assessed whether the U.K. financial services regulatory framework is fit for purpose and able to support future growth, particularly in light of challenges such as Brexit and climate change. On the same day, HM Treasury published its response to the final consultation in the FRF Review. The FSM Bill establishes a revised blueprint for financial services regulation by revamping the existing model under the Financial Services and Markets Act 2000 and revoking retained EU law in financial services. The regulators will be delegated powers for detailed rulemaking, and as a result, become subject to enhanced Parliamentary oversight.
Read more.ATTORNEYS: Sandy Collins, Barnabas W.B. Reynolds
TOPICS : Brexit for Financial Services, FinTech, MiFID II, Payment Services, Securities -
EU Consultation on Guidelines for Applications to Operate DLT Market Infrastructures under the EU Pilot Regime
07/11/2022
The European Securities and Markets Authority has launched a consultation on proposed guidelines on standard forms, formats and templates to apply for permission to operate distributed ledger technology for market infrastructure. The EU Regulation on a pilot regime for DLT market infrastructures will permit certain DLT market infrastructures to operate with exemptions from some elements of otherwise applicable EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The DLT Regulation sets the conditions for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) and DLT trading and settlement system (DLT TSS), and will, for the most part, apply from March 23, 2023. ESMA is consulting on proposed guidelines on:- the minimum instructions that national competent authorities should provide to market participants for submitting their applications; and
- the method that applicants should use to provide the requested information and documents to their competent authorities.
Responses to the consultation may be submitted until September 9, 2022. ESMA will consider the feedback and intends to publish the final guidelines before the DLT Regulation applies.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, MiFID II -
EU Distributed Ledger Technology Pilot Regime Published
06/02/2022
The EU has published in the Official Journal of the European Union its Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime will permit certain DLT market infrastructures to operate with exemptions from some EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The regime is intended to promote legal certainty, support innovation, preserve market integrity and ensure financial stability for the use of DLT in crypto-asset and e-money token markets.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Cyber Security, Financial Market Infrastructure, FinTech, MiFID II -
Government Details Proposed Financial Services and Markets Bill
05/10/2022
Following the Queen's speech yesterday, the government has published a briefing pack setting out details of the bills that it intends to introduce, including the so-called Brexit Freedoms Bill as well as key legislation relevant to financial services. The government will introduce a Financial Services and Markets Bill, which will, among other things:- Introduce new statutory objectives for the financial services regulators to support growth and international competitiveness.
- Implement the changes to the wholesale markets arising out of the Wholesale Markets Review. HM Treasury confirmed in March of this year that the changes that will be made by legislation and where powers will be delegated to the financial services regulators for rules to be made. Among the changes are the removal of the share trading obligation and the double volume cap, changes to the derivatives trading obligation, taking OTC derivatives that are economically equivalent to exchange traded commodity derivatives out of the position limits regime, and the establishment of a consolidated tape.
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Queen’s Speech Confirms Government Will Proceed with Brexit Freedoms Bill
05/10/2022
Prince Charles, Prince of Wales, delivered the Queen’s speech in which he announced that the government will be introducing the so-called Brexit Freedoms Bill, which was first announced by Prime Minister Boris Johnson on January 31, 2022, and is intended to make it easier to amend or remove retained EU laws to better suit the U.K.’s circumstances and policies. The Brexit Freedoms Bill will work in tandem with a government drive to reform, repeal and replace EU laws that are seen as outdated, cumbersome or otherwise not in the U.K.’s national interest.
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UK Conduct Regulator Publishes Results of Review of Investment Platforms Market
05/04/2022
The U.K. Financial Conduct Regulator has published a statement on the results of its review of the investment platforms market. The FCA launched its Investment Platforms Market Study in 2017 to investigate whether competition between investment platforms was working in the interests of consumers. Investment platforms enable consumers and financial advisers to review investment opportunities across a range of funds and execute and change their investments. In 2019, the FCA published a Final Report which concluded that consumers should be able to switch more easily between investment platforms, and proposed a series of measures to help achieve this. It also announced that it would review the industry's progress in adopting these measures in 2020/2021. The FCA's statement sets out the results of that review.
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UK Conduct Regulator Commits to Three-year Strategy of Improving Outcomes of Regulation
04/07/2022
The U.K. Financial Conduct Authority has published a three-year Strategy on improving outcomes of regulation and its 2022/23 Business Plan. In the 2022-2025 Strategy, the FCA outlines its expectations of financial services across all sectors, with a view to the overall outcomes that firms should achieve. There are three outcomes for both the wholesale and retail markets, which are fair value, access and confidence. An additional outcome of suitability and treatment applies for the retail markets, to ensure that consumers are treated well and are sold products and services that are suitable for them. The 2022/23 Business Plan sets out the detailed work that the FCA will undertake over the next year to meet the commitments made in its Strategy.
Read more.ATTORNEYS: Sandy Collins, Barnabas W.B. Reynolds
TOPICS : Consumer Protection, Financial Services, FinTech, MiFID II -
HM Treasury Confirms Policy Approach on Wholesale Markets Review
03/01/2022
HM Treasury has published its consultation response to the Wholesale Markets Review, setting out summaries of responses received to its proposals and how changes will be progressed. There are certain areas that HM Treasury will not progress at this stage, and which will be subject to further consideration.
For the proposals that are being taken forward, implementation may be by legislation or pursuant to the Financial Conduct Authority's rules. HM Treasury states that legislation will be brought forward when Parliamentary time allows. In certain instances, where details are currently set out in legislation, but would sit better in regulatory rules, the government intends to legislate to delegate responsibility to the FCA for preparing detailed rules, which it states will be part of the implementation of the Future Regulatory Framework review. The FCA is expected to consult on its proposals for existing rule amendments in the first half of this year.
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European Securities and Markets Authority Publishes Guidelines on MiFID II Appropriateness and Execution-Only Requirements
01/03/2022
The European Securities and Markets Authority has published new Guidelines on the appropriateness and execution-only requirements under the revised Markets in Financial Instruments Directive. The appropriateness requirements under MiFID II require investment firms providing investment advice to assess a potential client's knowledge and experience in the investment field, to ascertain whether a particular service or product is appropriate for the client. There are exemptions from these requirements under the execution-only framework, subject to certain conditions being met. ESMA's new Guidelines are designed to enhance convergence across the EU on the application of these requirements.
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UK Financial Conduct Authority Confirms Approach to Supervision of Commodity Derivatives Position Limits Regime
12/20/2021
The U.K. Financial Conduct Authority has published a statement confirming its approach to supervising commodity derivatives position limits. The statement follows the FCA's Supervisory Statement on the operation of the Markets in Financial Instruments regime after the end of the EU withdrawal period published in December 2020 in which the regulator stated that until January 1, 2022, it would not take any supervisory or enforcement action for positions that exceed limits where the position is held by a liquidity provider to fulfill its obligations on a trading venue. In its latest statement, the FCA confirms that it will extend that approach pending the outcome of HM Treasury's Wholesale Market Review and subject to any indications of market abuse arising. The FCA states that firms should make their own assessment of whether the positions they take are positions resulting from their actions as a liquidity provider. Firms do not need to report their assessments to the FCA; however, a firm may need to explain an assessment to the FCA on request. -
European Commission Proposes Revisions to MIFID II
11/25/2021
The European Commission has published legislative proposals to amend the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The proposals are part of the Commission's package of proposals to enhance the availability of information on trading and companies for investors. The main changes are set out in the proposed regulation to amend MiFIR. Some of the proposed changes are similar to those that the U.K. has made or is contemplating making as part of the Wholesale Markets Review.
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UK Financial Conduct Authority Publishes Discussion Paper on Sustainability Disclosure Requirements and Investment Labels
11/03/2021
The U.K. Financial Conduct Authority has published a discussion paper on its proposed Sustainability Disclosure Requirements and sustainable investment labels. The FCA is seeking initial views on these proposals with the intention of consulting on fuller policy proposals in Q2 2022. Responses to the discussion paper may be submitted until January 7, 2022. These proposals link to the U.K. government's ambitions on climate change and green finance, detailed in its October policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.
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EU Delegated Regulation on Ancillary Activity Criteria under MiFID II
10/21/2021
An EU Commission Delegated Regulation (2021/1833) on the criteria for when an activity will be considered as ancillary to the main business has been published in the Official Journal of the European Union. The changes to the EU’s Markets in Financial Instruments Directive, known as MiFID Quick Fix, include changes to the ancillary activity exemption. The exemption from authorization as an investment firm is available when dealing on own account, or providing investment services to clients in commodity derivatives, emission allowances or derivatives thereof, provided that the activity is an ancillary activity to their main business at group level and the main business is not the provision of investment services within the meaning of MiFID II or banking activities under the Capital Requirements Directive.
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UK Regulator Amends Derivatives Trading Obligation for LIBOR Transition Purposes
10/15/2021
Following its July 2021 consultation, the U.K. Financial Conduct Authority has published a Policy Statement amending the list of derivatives subject to the U.K. trading obligation for the purposes of the LIBOR transition.
The derivatives trading obligation under the U.K. version of the Markets in Financial Instruments Regulation requires U.K. investment firms to conclude transactions in certain derivatives on U.K. regulated markets, multilateral trading facilities, organised trading facilities or third-country venues in jurisdictions benefiting from U.K. equivalence decisions. In the absence of any equivalence decision, the FCA used its Temporary Transitional Power to provide transitional relief from December 31, 2020 (the end of the transition period) until March 31, 2022 for U.K. firms, EU firms using the U.K.'s temporary permissions regime and U.K. branches of overseas firms. The trading obligation currently applies to certain fixed-to-float interest rate swaps denominated in EUR, USD and GBP, and to certain index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover).
Read more.ATTORNEYS: Thomas Donegan, Kristina Killick, Sandy Collins
TOPICS : Derivatives, LIBOR Transition, MiFID II -
European Securities and Markets Authority Recommends Changes to EU Algorithmic Trading Rules
09/29/2021
The European Securities and Markets Authority has published a review report on algorithmic trading under the EU's Markets in Financial Instruments package. The Markets in Financial Instruments Directive requires the European Commission to review and report on the impact of the MiFID II requirements on algorithmic trading, including high frequency trading and direct electronic access. ESMA's report will assist the Commission with that remit, including determining whether any legislative changes are appropriate.
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Proposed Amendments to the EU Best Execution Reporting Regime under MiFID II
09/24/2021
The European Securities and Markets Authority has launched a consultation on proposed amendments to the best execution reporting regime under the EU's Markets in Financial Instruments Directive. Responses to the consultation may be submitted by December 23, 2021. ESMA is expected to send its recommendations for amendments to the European Commission in H1 2022.
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UK Wholesale Market Review
07/01/2021
The U.K. government has launched a consultation, the Wholesale Markets Review, on proposals to amend the U.K.'s Markets in Financial Instruments regime. This regime is based upon the Markets in Financial Instruments Directive and related Regulation, as well as several pieces of delegated legislation thereunder, collectively and colloquially known as MiFID II, which the U.K. on-shored with minor amendments following its exit from the European Union. HM Treasury is now seeking feedback on how the U.K.’s approach to regulating secondary markets should be adapted now that the U.K. has left the EU. The intention is to amend the regime to reflect that the U.K. market is one of the largest capital markets globally. Changes are also proposed where it is clear that the rules have had unintended outcomes, are duplicative or excessive or have curbed innovation. The consultation is open until September 24, 2021.
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UK Taskforce on Innovation, Growth and Regulatory Reform Publishes Recommendations
06/16/2021
The Taskforce on Innovation, Growth and Regulatory Reform has published its report, making several recommendations for reforming the U.K.'s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of the common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector. The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year.
The TIGRR report recommends the approach to regulation is reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition and invigorating innovation.
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UK to Remove Open Access Regime for Exchange-Traded Derivatives
06/05/2021
The U.K. Government has announced that it will permanently remove the open access regime for exchange-traded derivatives. The regime, established under the EU Markets in Financial Instruments Regulation and onshored into U.K. laws in preparation for the end of the Brexit transitional period, requires a trading venue to provide open and non-discriminatory access to a CCP, with a reciprocal requirement for CCPs to provide access for trading venues, when clearing transferable securities, money market instruments and ETDs. In the EU, a temporary opt-out from the regime was made available and then extended for trading venues and CCPs in relation to ETDs, but that is due to expire on July 3, 2021 (having been extended for a period of one year due to difficulties surrounding COVID-19).
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UK Financial Services Act 2021 Published
04/29/2021
The U.K. Financial Services Bill has received Royal Assent from Her Majesty the Queen and has become an Act of Parliament, the Financial Services Act 2021. Some provisions of the Act came into force on the date of Royal Assent, with a limited number following on June 29, 2021. The majority of the Act will come into force on a date specified in regulations yet to be made by HM Treasury.
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UK Proposals to Ease Unbundling of Research and Best Execution Rules
04/28/2021
The U.K. Financial Conduct Authority has launched a consultation on certain proposed changes to the U.K. rules on the unbundling of research and best execution reporting, which are part of the Markets in Financial Instruments Directive (as inherited from the EU). The consultation closes on June 23, 2021, and the FCA is expected to publish its response and final rules in the second half of this year. The proposals are set out in brief below. Some of these are in the same areas covered by the EU MiFID II Quick Fix Regulation, but the FCA is not copying those rules, and it goes further in most areas.
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UK Government Publishes Proposals for Investment Firm Prudential Regime and Implementation of Outstanding Basel III Requirements
02/04/2021
The U.K. Government has opened a consultation on the implementation of the Investment Firms Prudential Regime and the remaining Basel III Standards in the U.K. The Financial Services Bill, once it is finalized, will introduce powers for the Financial Conduct Authority and the Prudential Regulation Authority to introduce the IFPR and outstanding Basel III prudential requirements for banks. The FCA has already launched a consultation on some aspects of the IFPR and will consult on the others throughout the year. The PRA is expected to consult on implementation of Basel III in Q1 2021. HM Treasury's consultation concerns those aspects of the two regimes that will require secondary legislation under the Financial Services Bill. The consultation closes on April 1, 2021.
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UK Equivalence Decision for Swiss Exchanges Enters into Force
02/03/2021
The U.K.'s Swiss share trading obligation equivalence decision has entered into force. The equivalence decision has been made under the U.K.'s Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021, which came into force on February 3, 2021, and means that U.K. investment firms will be able to comply with the share trading obligation under the U.K. Markets in Financial Instruments Regulation by trading shares on BX Swiss AG and SIX Swiss Exchange AG.
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European Securities and Markets Authority Launches 2021 Common Supervisory Action on MiFID II Product Governance Rules
02/01/2021
The European Securities and Markets Authority has announced that during 2021 it will be conducting a common supervisory action with national competent authorities on the product governance rules under the Markets in Financial Instruments Directive. The product governance requirements require firms which manufacture and distribute financial instruments and structured deposits to act in their clients' best interests during all the stages of the life-cycle of products or services. The CSA will assess the progress of compliance with the requirements by manufacturers and distributors of financial products.
ESMA conducts CSAs to promote the convergence of application of EU rules across the EU. Following a CSA into the MiFID II appropriateness requirements, ESMA is considering introducing guidelines to promote further harmonization.
View ESMA's announcement.
View details of ESMA's proposed guidelines on appropriateness.TOPIC : MiFID II -
Proposed EU Guidelines on MiFID II Appropriateness Requirements
01/29/2021
The European Securities and Markets Authority has opened a consultation on proposed guidelines on the appropriateness and execution-only requirements under the Markets in Financial Instruments Directive. The appropriateness requirements under MiFID II require investment firms providing investment advice to assess a potential client's knowledge and experience in the investment field to ascertain whether a particular service or product is appropriate for the client. There are exemptions from these requirements under the execution-only framework, subject to certain conditions being met. Responses to the consultation may be submitted until April 29, 2021. ESMA is aiming to issue the final guidelines in Q3 2021.
ESMA is proposing these new guidelines to enhance convergence across the EU on the application of these requirements. The common supervisory action conducted in the second half of 2019, as well as other supervisory interactions, revealed that firms have different understandings of the appropriateness and execution-only requirements and that Member States apply them differently. The proposed guidelines will apply in full to all investment firms providing non-advised services, regardless of the means of interaction with clients.
View ESMA's consultation on proposed guidelines on the appropriateness and execution-only requirements under MiFID II.TOPIC : MiFID II -
EU Authority Issues Statement on Reverse Solicitation under MiFID II
01/13/2021
The European Securities and Markets Authority has issued a statement reminding firms of the rules on reverse solicitation under the Markets in Financial Instruments Directive and Regulation. MiFID II provides that EU retail or professional clients may reach outside the EU and acquire services and products from non-EU investment banks (known as "reverse solicitation") and that in these circumstances the third-country firm is exempt from the requirement to establish an EU branch. ESMA has issued the statement following what it describes as "questionable practices" materializing following the end of the Brexit transition period, where firms have purported to opt clients into "reverse solicitation" through either generic terms and conditions amendments or click-through "I agree" boxes online. It is clear from this guidance that ESMA's view is that more is needed than this to invoke the reverse solicitation regime. Notably, the ESMA report does not criticise more robust reverse solicitation protocols that are currently being seen in the market, such as a termination notice by the U.K. service provider of the existing agreement, sometimes with a covering note that the client could at its initiative reach out afresh to request entry into of a new agreement should it so desire.
View ESMA's statement on reverse solicitation.
You may like to view our client note, "On the Existence of a Pan-European Reverse Solicitation Regime Under MiFID II, and its Importance on a 'Hard' Brexit". -
UK Grants Equivalence to Swiss Exchanges for Purpose of UK Share Trading Obligation
01/13/2021
U.K. legislation has been made granting equivalence to Swiss exchanges under the U.K.'s Markets in Financial Instruments Regulation. The Markets in Financial Instruments (Switzerland Equivalence) Regulations 2021, which enter into force on February 3, 2021, grant equivalence to two Swiss exchanges - BX Swiss AG and SIX Swiss Exchange AG. U.K. MiFIR requires U.K. investment firms to ensure that the trades they undertake in shares admitted to trading on a regulated market or traded on a trading venue take place on a regulated market, multilateral trading facility, systematic internaliser or equivalent third-country trading venue. U.K. investment firms will be able to comply with the U.K. MiFIR share trading obligation by trading shares on these Swiss exchanges.
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UK Government Seeks Input on UK Framework for Cross-Border Financial Services
12/15/2020
HM Treasury has launched a call for evidence on the U.K.'s framework for cross-border financial services. HM Treasury is considering policy approaches for ensuring the U.K. framework is fit for the future given the U.K.'s exit from the EU, including consideration of how effective and proportionate regulation can support attracting investment and liquidity to the U.K. Responses to the consultation may be submitted until March 11, 2021.
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UK Regulator Publishes Proposals for New Investment Firm Prudential Regime
12/14/2020
Following the discussion paper published earlier this year, the U.K. Financial Conduct Authority has launched its first consultation on the new U.K. Investment Firms Prudential Regime. The IFPR is a new prudential regime for U.K. firms authorized under the Markets in Financial Instruments Directive, which it is proposed will be introduced from January 1, 2022, subject to the progress of the Financial Services Bill. The IFPR is intended to simplify the prudential requirements applicable to solo-regulated U.K. investment firms. It will not apply to the larger investment firms that will remain dually regulated, that is, prudentially regulated by the Prudential Regulation Authority and regulated by the FCA for all other aspects. The consultation closes on February 5, 2021.
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