Background
On 31 December 2024, the FCA issued a new direction under Article 28a of UK MiFIR to modify the UK DTO, replacing the expiring transitional direction. The direction allows firms subject to the UK DTO, trading with or on behalf of EU clients subject to the EU DTO, to execute those trades on EU trading venues, provided certain conditions are met, which includes that firms must take reasonable steps to be satisfied the client does not have arrangements in place to execute the trade on a trading venue to which both the UK and EU have granted equivalence.
Summary
Under Article 28a(9) of UK MiFIR, where a direction remains in effect for longer than 6 months, the FCA must publish as soon as reasonably practicable after each 6-month period, a statement explaining why the conditions under Article 28a(1)(a) and (b) continue to be met in order to extend it for a further six months. As a result, the FCA has published the following explanation covering the six-month period to 31 December 2026:
- Article 28a(1)(a) – Ongoing need to prevent or mitigate market disruption: In the absence of mutual equivalence between the UK and EU, the FCA considers that maintaining the direction is necessary to prevent or mitigate disruption for market participants caught by a conflict of law between the EU and UK DTOs, in particular branches of EU firms in UK.
- Article28a(1)(b) – Advancement of FCA’s operational objectives: The FCA sets out that it is of the view that the direction continues to advance its operational objectives under section 1B(3) of the Financial Services and Markets Act 2000 by preventing or mitigating disruption for market participants caught by a conflict of law between the EU and UK DTOs in the absence of mutual equivalence between the UK and EU.
Next steps
The FCA confirms that a further review will be conducted at the conclusion of the next six-month period, after which, if the direction is still in force the FCA will issue a new statement.