On 5 July 2023, the FCA announced a series of measures intended to help strengthen the UK’s leading position as a ‘global and vibrant’ financial centre, as part of the Wholesale Markets Review (WMR).
The measures include:
- Consultation paper 23/15 on a proposed framework for a UK consolidated tape.
- Policy statement 23/11 setting out new guidance on the trading venue perimeter.
- A new pre-application support service for overseas wholesale markets firms
Proposals for a establishing a CT
In CP23/15, the FCA sets out its proposed new framework to establish a consolidated tape (CT) in the UK, which would collate market data such as prices and volumes associated with trades in a financial market. The EU’s second Markets in Financial Instruments Directive (MiFID II), which took effect in the UK in 2018, contained a regime to allow for multiple competing CT providers (CTPs) per asset class, but no firm has applied for authorisation to be a CTP under that regime.
HM Treasury said in its 2022 consultation response on the WMR that it wanted to revise the existing regime and enable the emergence of a CT in the UK, and the December 2022 Edinburgh Reforms noted that HM Treasury and the FCA would put a legislative and regulatory regime in place by 2024 to facilitate this.
The WMR also suggested that bonds were a priority, so the FCA’s proposals in CP23/15 relate to the creation of a CT for bonds. The FCA explains that a well-designed CT framework should lead to the emergence of a CTP and on that basis, it invites feedback on proposed criteria for how a CTP would operate and the tender process for appointing a CTP.
CP23/15 also includes a section for discussion on a CT for equities, where the FCA’s thinking is less developed, but it expects a CT framework to be introduced once the framework has been established. The FCA is also using the consultation to consolidate in the Handbook, without making any substantive changes, existing provisions relating to Approved Reporting Mechanisms (ARMs) and Approved Publication Arrangements (APAs).
The consultation closes on 15 September 2023. After it has considered the feedback, the FCA plans to make the necessary amendments to its Handbook and publish a policy statement in December 2023.
New guidance on the trading venue perimeter
In PS23/11, the FCA has set out new guidance on the regulatory perimeter for trading venues. The guidance aims to provide greater clarity on when firms may be operating a multilateral system and so require authorisation as a trading venue.
The guidance will be set out in the Perimeter Guidance manual (PERG) of the Handbook in the form of Q&As. The guidance in Q24C – Q24L of PERG 13.3 clarifies the FCA’s interpretation of the different elements of the definition of a multilateral system and how it applies to specific types of arrangements in financial markets. The definition of a ‘service company’ in the Glossary of the Handbook is also being updated, to reflect current client categorisation terminology.
The FCA notes that, following the issuance of this guidance, Q&As 7, 10, 11 and 12 in section 5 of the European Securities and Markets Authority’s Q&As on MiFID II and MiFIR market structures topics will no longer form part of the FCA’s supervisory expectations, reflecting the fact that these have now been superseded in domestic guidance.
To interpret the perimeter, the FCA will continue to focus on the substance of the activity in question, rather than how it is labelled or whether the system operator complies with the requirements applicable to trading venues.
The guidance will come into force on 9 October 2023.
Ahead of this date, the FCA notes that firms should satisfy themselves that they hold the correct regulatory permissions and may wish to seek professional advice to inform this assessment. Any firm that wishes to adjust its regulatory permissions is encouraged by the FCA to engage with its relevant supervisor at an early stage, so that they can work with firms on a case-by-case basis to ensure an orderly transition.
New pre-application support service
The FCA is launching a new pre-application support service (PASS) for overseas wholesale firms and their advisers wishing to expand into the UK, firms already in the UK but planning to set up in the devolved nations and outside the south-east, and those with innovative, complex or high-risk business models.
PASS, which replaces the Asset Management Authorisation Hub (a similar service launched in 2017) with effect from this month, is intended to provide more support for firms such as pre-application meetings and the opportunity for FCA speakers to talk about the wholesale firm authorisation process as industry events, roundtables and conferences.