Many of the rules that govern the buying, selling and organised trading of commodity derivatives and emission allowances are set out in the Markets in Financial Instruments Regulation (MiFIR). MiFIR is one of two pieces of EU derived legislation (the other being the second Markets in Financial Instruments Directive (MiFID II)) which together underpin what is referred to as the MiFID II framework. As part of the onshoring process, the MiFID II framework was amended to address deficiencies arising as a result of the UK’s withdrawal from the EU and the end of the Transition Period.
The UK played a significant role in designing the MiFID II framework, and the Government believes that the resilience and effectiveness of the UK’s capital markets has been significantly strengthened by the post-crisis reforms that it implemented. Although the regime is working well in many areas, the EU approach to regulation - where the same rules apply across member states to facilitate a single market in financial services - means that many of the MiFID II framework requirements were not designed specifically for UK markets. In other areas, it is clear that the framework has not delivered its intended benefits, has led to duplication and excessive administrative burdens for firms, or has stifled innovation.
Following the UK’s exit from the EU, in July 2021, the Government launched the Wholesale Markets Review (WMR) consultation with the aim of creating a simpler and less prescriptive regime that meets the needs of UK markets while maintaining high regulatory standards. As part of this, the Government consulted on changes to streamline the process for determining when a firm trading commodity derivatives or emission allowances needs to be authorised as an investment firm. These were welcomed by industry and the Government committed to take them forward when it responded to the consultation in March 2022. The Chancellor also committed to streamline the process for determining when firms who trade commodities as an ancillary activity need to be authorised as an investment firm, as part of the “Edinburgh Reforms” that were announced on 9 December 2022.
This Order delivers on that commitment. It will simplify the process for firms while resulting in the same regulatory outcome. The FCA will put in place a simpler and therefore lower cost regime for determining when a firm that trades commodities or emission allowances as an ancillary activity does not need to be authorised as an investment firm.
As required under the ‘enhanced scrutiny procedure’ set out in schedule 8 of the European Union (Withdrawal) Act 2018, the draft order and explanatory memorandum will be published online for a period of at least 28 days before the instrument is formally laid in Parliament for affirmative debate. This is required under paragraph 14 of Schedule 8 to the European Union (Withdrawal) Act 2018 because the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 which are being amended were originally made under section 2(2) of the European Communities Act 1972. To read the full draft Statutory Instrument and Explanatory Memorandum, please visit:
This statement has also been made in the House of Lords