Executive Summary
HM Treasury launched the UK’s Wholesale Markets Review (WMR) in 2021 to determine how the UK should adapt its approach to regulating secondary markets post-Brexit and improve certain rules under the onshored EU Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) that have not delivered their intended benefits.
WMR proposals that were identified by the UK government as a high priority and required legislative amendments were implemented through new primary legislation, the Financial Services and Markets Act 2023 (FSMA 2023). FSMA 2023 made immediate targeted modifications to retained EU law and will apply for a transitional period until the retained MiFIR is replaced with a UK purpose-made alternative. The Government will decide whether, after the end of the transitional period (which is until 2026), EU-derived legislation is to be retained, in whole or in part and with or without modifications, whether it should be retained in the form of stand-alone regulations or via amendments to primary legislation (e.g., as part of FSMA itself) or other subordinate legislation and the extent to which the replacement or modification of all or part of the revoked legislation should be delegated to regulators under existing or new powers or via the new designated activities regime.
WMR proposals identified by the Government as less urgent are also being delivered, at a slower pace, through this process. Some WMR proposals have been delivered without further legislation and by UK regulators under existing rule-making powers. These are being made as soon as the relevant consultation and rule-making process is complete. Other proposals are being made by HM Treasury through secondary legislation or by UK regulators using new powers after relevant provisions of FSMA 2023 are brought into force and the relevant consultation and rule-making process is complete.
In December 2022, a package of 30 reforms, the “Edinburgh Reforms”, were announced by the UK’s Chancellor of the Exchequer. The Edinburgh Reforms put some of the WMR proposals into action, such as bringing forward secondary legislation in Q1 2023 to remove regulatory burdens for firms trading commodity derivatives as an ancillary activity; providing a timeline for the creation of a regulatory regime to support consolidated tapes for market data; and laying a statutory instrument before the UK Parliament to remove burdensome requirements related to investor reporting rules, including a revocation of Article 62 of the UK version of the MiFID Org Regulation (additional reporting obligations for portfolio management or contingent liability transactions) which came into force in mid-January 2023. The Edinburgh Reforms also introduced some new developments, including an independent review of investment research rules, a review of the onshored UK Short Selling Regulation and the establishment of a new industry-led Accelerated Settlement Taskforce to explore the potential of faster settlement of financial trades in the UK.
Please contact Adam Jacobs-Dean or Aniqah Rao with any questions regarding these proposals.
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Adam Jacobs-Dean
Managing Director, Global Head of Markets, Governance and Innovation
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Aniqah Rao
Associate Director, Markets, Governance and Innovation
Practical Implications
The WMR and Edinburgh Reform changes will present the following practical implications:
- Updates to reporting processes.
- Need to coordinate with sell-side counterparties to understand how changes will impact on execution of strategies and on responsibility for post-trade reporting.
- Need to integrate consolidated tape data into trading and operation processes.
- Possibility of paying for investment research and execution services on a ‘bundled’ basis.
- Possible changes to senior management responsibilities and remuneration structures.
- Possible need for new data collection frameworks within firms.
Timeline
Upcoming Changes
Authority |
Rule Change |
Effective Date |
Categorisation |
Resources |
Enacted by HMT and the FCA via Secondary Legislation/ Rule-Making powers |
||||
HMT |
Revocation of the ancillary activities test, reintroduction of the pre-MiFID II ‘commodity dealer exemption’ and removal of the annual notification requirement via The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023
|
1 January 2025 |
Low Priority Medium Impact |
AIMA summary of WMR consultation AIMA response to WMR consultation HMT Response AIMA summary of HMT response. AIMA summary of WMR state of play (as of November 2022). |
FCA |
Introduction of a ‘Designated Reporter Regime’
|
29 April 2024 |
High Priority High Impact |
FCA Improving Equity Secondary Markets AIMA response to consultation FCA Policy Statement |
FCA |
New requirements relating to post-trade transparency (changes to inter fund transfers; give-ups and give-ins; inter-affiliate trades; central counterparties; deferrals; trade reports; and reporting fields) |
29 April 2024 |
Medium Priority Medium Impact |
FCA Improving Equity Secondary Markets AIMA response to consultation FCA Policy Statement |
Past Changes
Authority |
Rule Change |
Effective Date |
Categorisation |
Resources |
Enacted by HMT via FSMA 2023 |
|
|||
HMT |
Removal of Share Trading Obligation |
29 August 2023 |
High Priority High Impact |
AIMA summary of WMR consultation AIMA response to WMR consultation HMT Response AIMA summary of HMT response. AIMA summary of WMR state of play (as of November 2022).
|
HMT |
Replacement of the pre-trade transparency waiver regime and removal of the double-volume cap mechanism |
29 August 2023 |
High Priority High Impact |
|
HMT |
New definition of Systematic Internaliser (which removes the need for firms to undertake complex quantitative calculations to determine if they are operating on an organised, frequent, systematic and substantial basis). |
29 August 2023 |
Low Priority Low Impact |
|
HMT |
Removal of restrictions on midpoint crossing for trades (SIs will be able to execute client orders at the midpoint within the best bid and offer for all trades, not just orders Large in Scale.) |
29 August 2023 |
Medium Priority Medium Impact |
|
HMT |
Alignment of the counterparty scope of the Derivatives Trading Obligation with the EMIR Derivatives Clearing Obligation |
29 August 2023 |
Low Priority Low Impact |
|
HMT |
Exemption of post-trade risk reduction services from the Derivatives Trading Obligation |
29 August 2023 |
Low Priority Low Impact |
|
HMT |
Revocation of the requirement for position limits to be applied to all exchange-traded contracts and removal of economically equivalent OTC (EEOTC) contracts from the scope of the commodity derivatives position limits regime. |
29 August 2023 |
Low Priority Low Impact |
|
Enacted by HMT and the FCA via Secondary Legislation/ Rule-Making powers |
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FCA |
Changes to waivers from pre-trade transparency (the reference price waiver and the order management facility waiver)
|
1 May 2023 |
Low Priority Medium Impact |
FCA Improving Equity Secondary Markets AIMA response to consultation FCA Policy Statement |
FCA |
Changes to the tick size regime – allowing trading venues to adopt the minimum tick size of the primary market located overseas when that tick size is smaller than the one determined based on calculations using data from UK venues. |
1 May 2023 |
Low Priority Medium Impact |
FCA Improving Equity Secondary Markets AIMA response to consultation FCA Policy Statement |
FCA |
Exemption from inducement rules of research on SMEs who have a market capitalisation below GBP 200m from the inducement rules; Extension of the SME exemption to cover SME “corporate access”; Exemption of third-party research that is received by a firm providing investment services or ancillary services to clients where it relates to FICC instruments; Exemption of research providers who do not provide execution services and are not part of a group that includes a firm offering execution services; and Clarification that openly available written research will not fall within the scope of the inducement rules. |
1 March 2022 |
Low Priority Low Impact |
FCA Changes to UK MiFID Conduct and Organisational Requirements AIMA response to consultation FCA Policy Statement |
FCA |
Removal of the UK versions of RTS 27 and RTS 28 and removal of references to these reporting obligations in the FCA Handbook. |
1 December 2021 |
High Priority High Impact |
FCA Changes to UK MiFID Conduct and Organisational Requirements AIMA response to consultation FCA Policy Statement |
Changes Pending Finalisation
Authority |
Rule Change |
Effective Date |
Categorisation |
Resources |
Enacted by HMT and the FCA via Secondary Legislation/ Rule-Making powers |
|
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HMT; FCA |
Note: In 2024, the Financial Conduct Authority will consult on:
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No earlier than 2024 – final changes published and awaiting effective date. HMT will publish a draft Statutory Instrument with the legislative framework underpinning UK Short Selling Regulation amendments by end-2023. The final Statutory Instrument will be laid in 2024.
|
High Priority High Impact |
HMT Short Selling Regulation Review AIMA response HMT response |
HMT |
|
No earlier than 2024 – awaiting final changes. HMT will publish a draft Statutory Instrument with the legislative framework underpinning UK Short Selling Regulation amendments by end-2023. The final Statutory Instrument will be laid in 2024.
|
Medium Priority Medium Impact |
HMT Short Selling Regulation Review: Sovereign Debt and Credit Default Swaps AIMA response
|
FCA |
No current proposals. Views sought on:
|
No earlier than 2025 - awaiting proposals.
On 1 September 2023, the FCA published a provisional market investigation reference decision and progress report on its Wholesale Data Market Study. The FCA decided, provisionally, not to refer any of the three markets covered by market study (benchmarks, credit ratings data and market data vendor services) to the CMA at this stage. The FCA finds that it is most appropriate for it to take forward further work to identify and address the potential harm itself. The FCA welcomed industry feedback, in particular evidence on tying and bundling practices and complex non-transparent licensing terms, by 29 September 2023. The FCA will publish its final decision and report by 1 March 2024, with any actions to address the competition issues identified. |
Medium Priority Medium Impact |
FCA Wholesale Data Market Study Terms of Reference FCA Trade Data Review Findings Report AIMA response |
HMT; FCA |
Improve the UK market for investment research, e.g.:
|
No earlier than 2024 - awaiting final changes. The FCA will have responsibility for implementing the Investment Research Review recommendations. The FCA will consult on an accelerated timetable on potential regulatory changes in February/March 2024 and will aim to make relevant rules in H1 2024, with relevant rule changes effective by end-2024. |
High Priority High Impact |
HMT AIMA response Chair of Review Report |
FCA |
Improve the operational aspects of the UK’s Senior Managers and Certification Regime. |
No earlier than 2025 – awaiting proposals. |
Medium Priority Medium Impact |
AIMA response |
HMT |
Improve the legislative aspects of the UK’s Senior Managers and Certification Regime. |
No earlier than 2025 – awaiting proposals. |
Medium Priority Medium Impact |
FCA SMCR Review AIMA response |
FCA | Development of UK consolidated tapes for market data |
No earlier than 2025 – awaiting decision and proposals. The FCA is expected to publish a Policy Statement on the framework for a bonds consolidated tape on 19 December 2023. The FCA notes that implementation of changes to the MiFID non-equities transparency regime is expected in Summer 2025. The FCA expects to appoint a bonds consolidated tape provider in 2024 and the tape to be operational in 2025. The FCA plans to consult on the framework for an equities consolidated tape in 2024. |
Medium Priority Medium Impact |
FCA consultation on the framework for a UK consolidated tape AIMA summary AIMA response |
Upcoming Consultations
Authority |
Topic |
Timeline |
FCA |
Consultation on changes to the MiFIR transparency regime for bonds and derivatives (including deferrals) |
18 December 2023 publication |
FCA | Consultation on changes to the regime for commodity derivatives | 18 December 2023 publication |
FCA |
Consultation on changes to MiFID payment for investment research requirements |
February / March 2024 publication |
FCA |
Consultation on changes to UK Short Selling Regulation |
2024 publication |
FCA | Consultation on framework for an equities consolidated tape | 2024 publication |