FCA Statements of Policy on the operation of the MiFID transparency regime
The FCA has published Statements of Policy outlining how it will operate the MiFID transparency regime, if the UK leaves the EU without an implementation period. The MiFID transparency regime was calibrated using trading data from the EU including the UK. It currently operates by ESMA validating data on trading across the EU and performing various calculations to set assorted thresholds and make various determinations. If the UK leaves the EU without an implementation period agreed between UK and the EU, the FCA will be solely responsible for operating the regime within the UK.
The onshored UK regime provides the FCA with new decision-making powers as well as new obligations to operate the transparency regime. This includes a degree of flexibility during a 4-year transitional period to allow the FCA to build the systems necessary to operate the system as ESMA currently operates it, and to change the regime (if required) given the possible move from an EU-wide trading data set to a UK-only data set.
The statements of policy cover the FCA’s approach to:
- suspending the use of pre-trade transparency waivers for a trading venue for the purposes of the double volume cap (DVC) (Article 5(3B), UK MiFIR).
- withdrawing a pre-trade transparency waiver granted for a trading venue in respect of non-equity financial instruments (Article 9(3), UK MiFIR).
- suspending the pre-trade transparency obligations for trading venues in respect of non-equity financial instruments referred to in Article 8 (Article 9(4A), UK MiFIR) and suspending the post-trade transparency obligations for trading venues in respect of non-equities referred to in Article 10 (Article 11(2A), UK MiFIR).
- determining the standard market size of equity instruments for the purposes of the pre-trade transparency regime for systematic internalisers (Article 14(6A), UK MiFIR).
- suspending the post-trade transparency obligations for non-equity transactions taking place outside a trading venue referred to in Article 21(1) (Article 21(4A), UK MiFIR).
- directing that an equity instrument is to be treated as not having a liquid market under Articles 5(1) and 5(1A) of Commission Delegated Regulation (EU) 2017/567.
FCA confirms proposals in the event of a no-deal Brexit
The FCA has published near-final rules and guidance that will apply in the event the UK leaves the EU without an implementation period. As most of the changes proposed will be made under powers given to the FCA under the EU (Withdrawal) Act, they are subject to approval by the Treasury. The FCA has been working to deliver a transition that is as smooth as possible and this recent publication confirms its proposals in the event of a no-deal Brexit and brings together feedback from a number of consultation papers.
The papers also provide further details on the treatment of Gibraltar-based firms after Brexit and the temporary transition power. This power would give the FCA the ability to waive or modify changes to regulatory requirements which have been amended under the EU (Withdrawal) Act. In most cases, the FCA plans to allow firms a period of 15 months to adapt to these changes.
Nausicaa Delfas, Executive Director of International at the FCA stated in a press release:
“The FCA has been preparing for a range of scenarios, including the possibility that the UK leaves the EU in March 2019 without an implementation period. The documents published today are a significant milestone in this work: they ensure that there is a functioning regulatory regime from day one, and that firms are clear as to the requirements they need to meet by end March 2019 and beyond, so they can continue to meet the needs of their customers.”
Council of EU invites COREPER to approve final compromise text of EMIR Refit Regulation
On 1 March 2019, the Council of the EU published an “I” item note setting out the final compromise text of the proposed Regulation to amend EMIR (the Regulation on OTC derivative transactions, central counterparties (CCPs) and trade repositories (648/2012)) (the EMIR Refit Regulation) (2017/0090(COD)).
In the “I” item note, the General Secretariat Council invites its Permanent Representatives Committee (COREPER) to approve the final compromise text. It also asks COREPER to confirm that it can indicate to the European Parliament that, should the Parliament adopt its position on the proposal, as set out in the addendum, (subject, if necessary, to revisions of the text by the legal linguists of both institutions), the Council would approve the Parliament’s position and adopt the act in the wording that corresponds to the Parliament’s position
ESMA’s annual transparency calculations for equity and equity-like instruments published for 2019/20
On 1 March 2019, ESMA published a press release announcing that it has made available the results of the annual transparency calculations for equity and equity-like instruments.
Currently, there are 1,344 liquid shares, and 389 liquid equity-like instruments other than shares, subject to calculations relating to the transparency requirements in the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (600/2014) (collectively MiFID II). ESMA’s annual transparency calculations are based on the data provided to the ESMA financial instruments transparency system (FITRS) by trading venues and arranged publication arrangements (APAs) relating to the 2018 calendar year. The full list of assessed equity and equity-like instruments is available through FITRS in the XML files with publication date from 1 March 2019 and through the register web interface.
The transparency requirements based on the results of the annual transparency calculations published from 1 March will apply from 1 April 2019 until 31 March 2020. From 1 April 2020, the next annual transparency calculations for equity and equity-like instruments, to be published by 1 March 2020, will become applicable. Due to late data submissions by some reporting entities and adaptations necessary in case of a no-deal Brexit, ESMA will likely have to update the results after 29 March 2019. It intends to make the public aware of any updates in advance.
Bank of England and Financial Conduct Authority agree MoUs with EIOPA and EU insurance supervisors
The PRA, the FCA and European Insurance and Occupational Pensions Authority (EIOPA) have agreed Memoranda of Understanding (MoUs) regarding supervisory cooperation and information-sharing arrangements with respect to UK and EU/EEA insurance companies.
The MoUs cover supervisory cooperation and exchange of information between the UK authorities and EU insurance supervisors in the event the UK leaves the EU/EEA without a withdrawal agreement and implementation period. The agreements are as follows:
- a multilateral MoU with EU and EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information exchange between UK and EU/EEA national supervisors; and
- an MoU with EIOPA covering information exchange and mutual assistance between the UK authorities and EIOPA in the field of insurance regulation and supervision.
BCBS/IOSCO statement on the final implementation phases of the Margin requirements for non-centrally cleared derivatives
Significant progress has been made to implement the framework for margin requirements for non-centrally-cleared derivatives. Based on monitoring of the implementation of the framework across products, jurisdictions and market participants, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) has provided guidance to support timely and smooth implementation of the framework and clarify its requirements.
The EMIR uncleared margin rules provide that the exchange of initial margin does not need to take place if a counterparty has no significant exposures to another counterparty. Specifically, counterparties may bilaterally agree a minimum threshold of up to EUR 50 million, which will ensure that only counterparties with significant exposures will be subject to the initial margin requirements. Some market participants were concerned that the EMIR margin rules meant that counterparties that could benefit from this threshold, such that they would not in practice exchange initial margin, would nevertheless have to put in place all of the necessary documentation and operational infrastructure to allow for initial margin to be exchanged in case the threshold was breached in the future.
The BSBC / IOSCO statement provides that the initial margin framework (which the EMIR margin requirements derive from) does not specify documentation, custodial or operational requirements if the bilateral initial margin amount does not exceed the EUR 50 million initial margin threshold. As such, counterparties that expect to be able to benefit from the threshold would not need to put such arrangements in place.
Derivatives contracts that reference an IBOR that is set to be permanently discontinued will need to be amended to contractually provide for a fall-back rate (and any consequential amendments) to ensure that the contract can continue once the IBOR is actually discontinued. It has been thought by some market participants that amending contracts that were entered into prior to the application of the EMIR uncleared margin rules (i.e., legacy contracts) to provide for these fall-backs would bring those legacy contracts within the scope of the margin rules.
This BCBS / IOSCO statement provides that amendments to legacy contracts pursued solely for the purpose of addressing interest rate benchmark reforms (i.e., IBOR discontinuance) do not require the application of the margin requirements (again, which the EMIR margin requirements derive from).
Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.
If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.
Phone: 0207 585 1406