The European Securities and Markets Authority has published an updated version of its manual on post-trade transparency and an updated version of its opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments under the Markets in Financial Instruments package. ESMA is providing further practical guidance on the provisions following the statement from last March on the transition for the application of the MiFID II/MiFIR Review, to reflect the changes introduced. ESMA explains that the amendments are published with the objective of contributing to the smooth transition and consistent application of MiFIR, and complements the clarifications on the applicable MiFIR Review and Technical Standards provisions provided in the Interactive Single Rulebook earlier this year. ESMA also stated that it has updated its Q&As on transparency and market structure issues.

The European Commission, the European Central Bank and the European Securities and Markets Authority have published a joint statement on the next steps to support the preparations towards a transition to T+1. Under the EU Central Securities Depositories Regulation, ESMA is required to assess the appropriateness of shortening the settlement cycle in the EU and to propose a detailed roadmap towards a shorter settlement. ESMA plans to deliver its report to the Council of the European Union and the European Parliament in the coming months.

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The European Securities and Markets Authority has published a consultation on the review of regulatory technical standards on transaction data reporting and on order book data under the revised Markets in Financial Instruments Regulation. The proposed changes to the RTS stem from the MiFIR Review amendments. We discuss the overall MiFIR Review changes in our bulletin "MiFID II: the EU's latest adaptations". The deadline for comments is January 3, 2025. ESMA aims to publish a final report and submit the draft technical standards to the EC by the end of Q2 2025.

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The European Securities and Markets Authority has announced the next steps for the selection of Consolidated Tape Providers for bonds, shares and ETFs. ESMA will launch the selection procedure for the CTP for bonds on Friday January 3, 2025, intending to adopt a reasoned decision on the selected applicant within six months of the launch, i.e. by early July 2025. In June 2025, ESMA will launch the selection procedure for the CTP for shares and ETFs with the objective to adopt a reasoned decision on the selected applicant by the end of 2025.

ESMA explains that each selection procedure will be launched with the publication of a contract notice and procurement documents on the EU Funding & Tenders Portal. Prospective applicants are invited to register and familiarize themselves with the Portal. In the coming weeks, ESMA intends to share additional guidance on the assessment of exclusion criteria. ESMA will be available to answer questions throughout the application periods, ESMA also confirms that applicants will be granted as much time as possible, within the boundaries of EU procurement rules, to provide details on their projects. ESMA states that it will publish in December the feedback statement to its proposed technical standards on CTPs and the assessment criteria for the CTP selection procedure. We discussed ESMA's draft technical standards in "European Securities and Markets Authority Proposes Draft Technical Standards for Consolidated Tape Providers".

The Financial Conduct Authority has published a policy statement and final rules that introduce payment optionality for research and trading commissions. The unbundling of research costs from execution commissions has been a controversial topic since the requirements were introduced in 2018 by the second Markets in Financial Instruments Directive. It is widely accepted that these measures have led to a substantial decline in research coverage, in particular for small and medium sized companies. Both the U.K. and the EU had tried a quick fix for the issue by introducing an exemption for SME research, however, that did not improve the research market. The unbundling of research and trading commissions also caused major challenges for U.S. broker-dealers who have had to either register under the Advisers Act or take complex operational steps in order to continue providing research to European investment companies. Following the Investment Research Review, the FCA consulted earlier this year on its proposals for introducing payment optionality and, taking account of feedback, has adjusted the details of some of the guardrails that will apply where firms opt to apply joint payments.

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The Financial Conduct Authority has launched a consultation on three proposed amendments to different aspects of the U.K. derivatives trading obligation. The consultation is part of the Wholesale Markets Review. The Markets in Financial Instruments Regulation imposes a "trading obligation," requiring mandatory on-venue trading for financial counterparties and non-financial counterparties where they engage in transactions in derivatives that: (i) have been declared subject to the clearing obligation under the U.K.'s European Market Infrastructure Regulation; (ii) are admitted to trading or traded on at least one U.K. trading venue (a regulated market, multilateral trading facility or organised trading facility) or a third-country equivalent trading venue; and (iii) are sufficiently liquid. Responses to the FCA's consultation may be submitted until September 30, 2024. The FCA intends to publish its direction on the modification of the DTO in Q4.

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The European Securities and Markets Authority has published a public statement on the transition to the new regime for post-trade transparency of OTC-transactions in light of the revised Markets in Financial Instruments Regulation. According to Article 21a of MiFIR II, Designated Publishing Entities, when they are party to a transaction, are responsible for making the transaction public through an approved publication arrangement. MiFIR II requires ESMA to establish by September 29, 2024, a public register of all Designated Publishing Entities, specifying their identity and the classes of financial instruments for which they act as Designated Publishing Entities. MiFIR II does not provide for a transitional provision for the application of the Designated Publishing Entities regime for post-trade transparency.

Considering the need to ensure an orderly transition to the Designated Publishing Entities regime, ESMA and national competent authorities have agreed on a two-step approach: (i) ESMA starts publishing the Designated Publishing Entities register on September 29, 2024; and (ii) the new Designated Publishing Entities regime for post-trade transparency becomes fully operational on February 3, 2025. Therefore, ESMA expects that as of February 3, 2025, registered Designated Publishing Entities, which are party to a transaction, will make the transaction public through an APA. At the same time, ESMA expects that the current approach relying on systematic internalisers to make transactions public through an APA should stop applying as of this date.

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The European Securities and Markets Authority has opened a consultation on proposed draft regulatory technical standards specifying the criteria for establishing and assessing the effectiveness of investment firms' order execution policies, accounting for whether the orders are executed on behalf of retail or professional clients. These proposals arise out of the MiFID Review, and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. We discuss these in our bulletin, "MiFID II: the EU's latest adaptations." The MiFID II best execution requirements oblige investment firms to obtain the best possible result for their clients when executing client orders, and require execution venues and investment firms to make data relating to the quality of execution of transactions publicly available.

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The Financial Markets Standards Board has commenced consulting on a transparency draft of a standard for sharing of standards settlement instructions. The standards settlement instructions specify the "where" of delivery/settlement after the execution of any financial transaction. The most significant cause of fails at the settlement stage, after lack of inventory, is incorrect or missing standards settlement instructions. The FSMB is proposing the standard to mitigate increased inefficiency risks as jurisdictions move to T+1 settlement. The standard aims to increase the adoption of electronic solutions that allow for standardization and pre-authentication of settlement instructions, and which facilitate "straight-through-processing" to improve efficiency of standards settlement instructions management by recipient counterparties and reduce settlement fails through incorrect standards settlement instructions. Where such electronic solutions are not legally or operationally feasible, the standard incorporates templates for manual sharing of standards settlement instructions which incorporate an industry-standard taxonomy (based on ISO 20022), which should minimize ambiguity. The proposal is structured in two main parts: (i) the standard, which sets out core principles for the channels, processes, and governance around sharing of standards settlement instructions; and (ii) standardized templates, based on industry-standard taxonomy, for use in residual cases where standards settlement instructions are sent manually. The deadline for comments is October 18, 2024.

The European Securities and Markets Authority has published a consultation paper on equity transparency, the volume cap, circuit breakers, Systematic Internalisers, the equity consolidated tape provider, and flags for non-equity transparency. The consultation aims to increase transparency and system resilience in financial markets, reducing reporting burden and promoting convergence in the supervisory approach. This package includes:

• amendments to rules on the liquidity assessment for equity instruments, on equity transparency and on the volume cap;
• a draft of the new ITS on Systematic Internalisers;
• a section on the equity CTP in relation to the input/output data, to ensure full alignment between the transparency requirements and the CTP specifications;
• a section on flags to be used in the post-trade transparency reports for non-equity instruments which was missing in the previous consultation; and
• new rules specifying organizational requirements of trading venues, adding new provisions on circuit breakers and with targeted amendments to adapt to the Digital Operational Resilience Act framework.

The deadline for comments on the technical advice, RTS 1, the RTS on input and output data for CTP, and the flags under RTS 2 is September 15, 2024. The deadline for comments on the SI ITS, RTS 3 and RTS 7 is October 15, 2024. ESMA will prepare a final report and submit to the European Commission the technical advice and the draft technical standards for RTS 1, the whole input and output data RTS and RTS 2 in December, and the remaining mandates in March 2025.

The Council of the European Union has announced that it has agreed its negotiating position on the retail investment package and published the relevant texts. The package consists of an amending Directive, known as the Omnibus Directive, which revises existing rules set out in the Markets in Financial Instruments II package, the Insurance Distribution Directive, the Undertakings for the Collective Investment in Transferable Securities Directive, the Alternative Investment Fund Managers Directive, and Solvency II, as well as an amending Regulation, which revises the Packaged Retail and Insurance-based Investment Products Regulation.

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The European Commission has published consultation for a draft Delegated Regulation supplementing the Markets in Financial Instruments Regulation as regards OTC derivatives identifying reference data to be used for the purposes of the transparency requirements laid down in Article 8a(2) and Articles 10 and 21 of MiFIR. Following the MiFIR Review, MiFIR now clarifies that the pre- and post-transparency requirements for non-equity instruments applies to both exchange-traded and OTC derivatives. The post-trade disclosure obligation for investment firms was also amended and that obligation no longer applies to derivatives "traded on a trading venue," but it does apply to OTC derivatives traded by an investment firm either on its own account or on behalf of clients. The transaction reporting obligation applies to both types of derivatives.

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The European Banking Authority and European Securities and Markets Authority have published a joint discussion paper on the potential review of the investment firms' prudential framework. The discussion paper aims at gathering early stakeholder feedback to inform the response to the European Commission's call for advice.

The EBA notes that it is of the overall opinion that the current framework reaches the original general objectives, providing a robust and risk-sensitive prudential framework tailored to the size, activities and complexity of investment firms regulated under the Markets in Financial Instruments package. Nonetheless, it notes that market participants and supervisors highlighted a number of issues or areas of potential improvements of the prudential framework that may lead to changes to either the Investment Firm Regulation and Investment Firm Directive or to the related delegated regulations.

Among other things, the discussion paper considers: (i) the implications of the adoption of the new EU Banking package (known as CRD VI and CRR III) concerning the trading book, the fundamental review of the trading book and credit valuation adjustments; (ii) prudential consolidation and a possible extension to crowdfunding and crypto-asset service providers; (iii) aspects related to compensation, including the scope of application, compensation policies, the requirements on variable remuneration, and their oversight, disclosure, and transparency; (iv) the treatment of firms currently non-prudentially regulated and active in commodity markets; (v) the categorization of investment firms; and (vi) reviewing the existing K‐factors to cover risks currently only addressed under the Pillar 2 framework or as possible alternatives to existing K-factors.

The deadline for comments is September 3, 2024. The EBA and ESMA plan to publish a final report by December 2024.

The European Securities and Markets Authority has published a public statement on the use of AI in the provision of retail investment services. When using AI, ESMA expects firms to comply with relevant Markets in Financial Instruments package requirements, particularly when it comes to organizational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.

ESMA reminds firms that although AI technologies offer potential benefits to firms and clients, they also pose inherent risks, such as: (i) algorithmic biases and data quality issues; (ii) opaque decision-making by a firm's staff members; (iii) overreliance on AI by both firms and clients for decision-making; and (iv) privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.

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The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) (Amendment) Order 2024 was published on May 29, 2024 and enters into force on December 31, 2024. The 2024 Amendment Order amends the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023 (S.I. 2023/548) by omitting the provisions relating to the new ancillary activities regime.

The 2023 Order, which enters into force on January 1, 2025, among other things, paved 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 ancillary activities test is an exemption from investment firm authorization requirements for firms that trade commodity derivatives or emission allowances as an ancillary activity to their main business, such as energy and other commodity trading firms which are active in both physical trading and financial instrument trading. Under the MiFID II regime, the ancillary activities exemption became based upon a hard-edged test with various financial thresholds. Some of these tests resulted in counterintuitive outcomes for firms, while other issues with the way in which the legislation had been drafted needed resolving via unusually narrow or arguably unnatural interpretations of the text, sometimes supported by regulatory or industry guidance. The 2023 Order simplified the process for determining when a firm satisfies the "ancillary activities" test in the post-Brexit U.K.

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The European Securities and Markets Authority has opened a consultation on draft technical standards related to consolidated tape providers and data reporting service providers, and the assessment criteria for the CTP selection procedure. The Markets in Financial Instruments Regulation envisaged the establishment of a "consolidated tape" for all equity and non-equity transactions. The CTP would collect post-trade information published by trading venues and Approved Publication Arrangements, and consolidate this into a continuous live data stream made available to the public. No consolidated tape has yet been set up in either the EU or the U.K. Following the March publication in the Official Journal of the European Union of the EU's MiFID Review legislation, the provisions in MiFIR on CTPs and DRSPs have been revised to, among other things, require trading venues and APAs (collectively referred to now as "data contributors") to submit market data directly and exclusively to the entities appointed by ESMA as the CTP for each asset class.

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The European Securities and Markets Authority has published a consultation paper on proposed changes to the rules for position management controls and position reporting. These proposals arise out of the MiFID Review, and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. MiFID II requires national regulators to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits apply to the size of a position that a person can hold, including any other positions held on behalf of that person by group entities. Trading venues are required to apply position management controls, including monitoring of open interest and obtaining information about the size and purpose of a position entered into, beneficial or underlying owners, concert arrangements, and any related assets or liabilities. Trading venues also have powers to require termination or reduction of positions and to require a person to provide liquidity back into the market at an agreed price and volume to mitigate the effect of a large or dominant position. The position reporting regime is intended to support the application and enforcement of position limits.

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The European Securities and Markets Authority has launched its first consultation on regulatory technical standards arising from the MiFID Review and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. The MiFID Review amendments aim to enhance the availability of information on trading and companies for investors. ESMA's consultation covers:

• Amendments to RTS 2 - the amendments relate to pre- and post-trade transparency requirements for non-equity instruments (bonds, emission allowances and structured products), and aim at ensuring trade information is available to stakeholders by improving, simplifying, and harmonising transparency requirements, and combining the right balance between real-time transparency and the ability to defer publication.
• Amendments to RTS 23 - the amendments relate to the obligation to provide instrument reference data that is fit for both transaction reporting and transparency purposes. ESMA also proposes to align this data with other relevant reporting frameworks and international standards in relation to reference data.
• New draft RTS on the obligation to make pre-and post-trade data available on a "reasonable commercial basis"—this is intended to guarantee that market data is available to data users in an accessible, fair, and non-discriminatory manner. The consultation elaborates on the cost-based nature of fees and the applicable reasonable margin.

Responses to the consultation may be submitted until August 28, 2024. ESMA intends to submit the draft RTS to the European Commission by the end of Q4 2024.

The Markets in Financial Instruments (Equivalence) (United States of America) (Commodity Futures Trading Commission) Regulations 2024 (SI 2024/638) were made on May 14, 2024 and entered into force on June 4, 2024. In preparation for Brexit, the U.K. onshored the EU's 2017 equivalence decision for the legal and supervisory framework applicable to designated contract markets and swap execution facilities in the U.S. for the purposes of the trading obligation for derivatives under the Markets in Financial Instruments Regulation. MiFIR requires that derivatives declared subject to the derivatives trading obligation must be traded on U.K. trading venues or third-country trading venues following an equivalence decision by HM Treasury. The onshored 2017 equivalence decision covers designated contract markets and swap execution facilities supervised and authorized by the Commodity Futures Trading Commission, and ensured that, when the U.K. left the EU, U.K. counterparties could continue to satisfy the DTO when they trade derivatives instruments on covered DCMs and SEFs.

HM Treasury has committed to reviewing the U.K.'s equivalence decision under the Smarter Regulatory Framework. In addition, HM Treasury considers that the CFTC's regime remains equivalent to U.K. MiFIR. The new Regulations therefore revoke and replace the onshored 2017 equivalence decision, updating the list of trading venues to include all current CFTC-authorized DCMs and SEFs.

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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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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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.

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. 

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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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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.

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.

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 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.

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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.

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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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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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Following rigorous debate in Parliament, the U.K.'s latest Financial Services and Markets Act (FSM Act) received royal assent on June 29, 2023. The FSM Act significantly changes the U.K.'s regulatory framework for financial services, implementing the government's post-Brexit Future Regulatory Framework Review and the Edinburgh Reforms. The existing regulatory model under the Financial Services and Markets Act 2000 has been enhanced with the introduction of a new "Designated Activities Regime" for the regulation of activities related to the financial markets, transfer to the U.K. regulators of responsibility for making and reviewing detailed firm rules, subject to enhanced oversight by Parliament and HM Treasury, and the establishment of a regulatory framework for oversight of third parties that provide critical services to financial institutions.

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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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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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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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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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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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The 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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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".

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.

We discuss these reforms in detail and what they might mean for the direction of travel for financial services regulation in the U.K. in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services".

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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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.

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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.

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.

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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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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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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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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.

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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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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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