On 28 April 2021, the FCA published Consultation Paper 21/9: Changes to UK MiFID’s conduct and organisational requirements (CP21/9).

CP21/9 is the FCA’s first consultation under its work on capital markets reform. The FCA is working with HM Treasury on capital markets reform that involves looking at the UK’s regulatory regime for capital markets to develop a package of changes. These changes are to ensure the regulation of investment business in the UK is adapted to the broad and deep structures of UK markets, underpinned by the highest regulatory standards that promote market integrity, effective competition and consumer protection. The capital markets reform work is looking at priority areas including: market structure, pre- and post-trade transparency for shares, bonds and derivatives, the cost and distribution of market data and commodity derivatives markets.

The FCA’s proposals in CP21/9 cover SME and fixed income, currencies and commodities (FICC) research and best execution reports.

In summary, the FCA proposes to change the existing inducements rules relating to research. These changes broadens the list of what are considered minor non-monetary benefits to include research on SMEs with a market cap below £200m and FICC research, so that it is not subject to the inducement rules. The FCA is also proposing to make rule changes on how inducement rules apply to openly available research and research provided by independent research providers.

The FCA is also proposing to remove two sets of reporting obligations on firms, being the:

  • obligation on execution venues to publish a report on a variety of execution quality metrics to enable market participants to compare execution quality at different venues (known as RTS 27 reports); and
  • obligation on investment firms who execute orders to produce an annual report setting out the top 5 venues used for executing client orders and a summary of the execution outcomes achieved (known as RTS 28 reports).

The FCA are concerned that RTS27 and RTS28 have not delivered on their original objectives in a meaningful or effective way and therefore propose deleting the UK versions of them. The FCA expect that they will be able to take a final policy decision on whether to abolish these reports during 2021.

The deadline for comments on CP21/9 is 23 June 2021.

Following CP21/9, HM Treasury will issue a consultation paper this summer that will look at the broad themes of capital markets reform and cover a range of high-level and more detailed questions. It will help prepare the ground, in due course, for proposals for changes to primary legislation, as well as helping to establish changes that could be made more quickly through secondary legislation.

The FCA will publish at least two further consultation papers this year. Before the summer, one will look at the consequences of LIBOR transition for the derivatives trading obligation. After the summer, another will cover changes to markets requirements in the FCA Handbook and technical standards that can be effective without significant supporting legislative change.

We will shortly issue a Regulation Tomorrow podcast on CP21/9.