Wholesale Markets Review: Openness, competitiveness and high regulatory standards

With focus on the UK’s role as a global centre for financial services, the much-anticipated post-Brexit UK Wholesale Markets Review has been published by HM Treasury. The consultation opens on 2 July 2021 with a closing date for responses on 24 September 2021.

The aim of the review is to determine how the UK regime for wholesale capital markets should be reformed to deliver a framework that is fair, outcomes-based and supports openness and competitiveness, whilst maintaining the highest regulatory standards.

Outside the EU regime, UK rules can be more closely tailored to the unique circumstances of the UK. There is a clear steer away from regulation that may stifle the economy, restrict market access or run counter to principles of openness and competition. Moreover, there is a clear emphasis on simplifying the regime, providing flexibility and getting rid of regulation that needlessly raises costs with little or no discernible benefit to market participants.

The government wants to enhance the effectiveness of the UK regulatory framework and ensure firms and regulators are able to address the challenges and opportunities of the future, as well as the present.

At the moment, a significant proportion of the rules that govern the trading of financial instruments in the UK are set out in UK legislation that transposes the EU Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR), which are referred to in the consultation paper as the MiFID II framework. Whilst the UK clearly played a significant role in developing that framework, the government plans to rectify specific areas where it is felt that the regime has not delivered the intended benefits, have led to excessive administrative burdens for firms or have stifled innovation.

This all sounds promising, but perhaps risks the UK further distancing itself from the EU in certain areas? 

The consultation includes proposals in a wide range of areas, including:

• Clarifying the regulatory perimeter and conditions governing trading venues and systematic internalisers to ensure the market can operate in confidence and promote innovation.
• Removing requirements around execution of transactions that limit firms’ ability to access the most liquid pools of capital where they can get the best outcomes for investors, including by removing the share trading obligation and the double volume cap.
• Recalibrating the transparency regime for fixed income and derivatives markets to ensure it is proportionate to the characteristics of these markets.
• Reforming the commodities regime to ensure that market activity is not needlessly restricted.
• Amending the market data regime to better enable market participants to identify the best available prices.

The issues raised in the consultation paper sit alongside the government’s intention to devolve rules to regulators, thereby making the UK regulatory regime more agile and allowing for greater expert contribution going forward.

In terms of timing, the government intends to bring forward primary or secondary legislation as soon as parliamentary time allows. The FCA has committed to take forward any further consultations about parts of the regime that fall within its rules and guidance from the second half of 2021.

In this briefing we highlight the key proposals in each of the parts of the consultation paper on which industry feedback is sought.