FCA Proposed Changes Aligns with Global Standards

Regulator may have been "attempting to make the UK market fit into a wholesale cross-border regime" says Alex McDonald, head of the Financial Trade Body EVIA, in response to the recent Consultation Paper from the FCA.

Recently, the FCA issued a Consultation Paper aimed towards improving Equity Secondary Markets which includes initiatives geared towards simplifying the reporting of OTC transactions, the re-working of the SI (Systematic Internaliser) status as well as introducing improvements in UK’s market competitiveness by permitting UK trading venues to use reference prices from overseas venues.

Qomply spoke to Alex McDonald, head of EVIA, previously known as the Wholesale Markets Brokers’ Association (WMBA), a trade body whose mission is to promote and enhance the value and competitiveness of wholesale markets trading venues, to understand their views on the changes proposed by the FCA. Brokerages and OTF Trading Venues are amongst EVIA’s members.

McDonald embraced some of the proposals being put forward, noting that the regulator may have been "attempting to make the UK market fit into a wholesale cross-border regime." A proposition that was appealing for EVIA’s membership as well as for the entire financial market as it would be essential for the UK to have connectivity to other markets outside the UK.

McDonald pointed to attempts by the regulators to create better and more meaningful transaction reports – an essential part of MiFID which brought transparency to the OTC market in 2018 by requiring firms executing trades in OTC instruments to report transactions on a daily basis. “Overall, it is a very technical piece of work, cutting out some of the redundant areas of reporting and consolidating the better information coming out of market transaction reports. This certainly lays the groundwork for consolidated tape and greater consistency and transparency in the market."

McDonald highlighted that "Any divergence the UK puts out is only done to align with the global standards in transaction reporting, and that there are some areas in which the current EU regime also needs to update and enhance to match these global standards. These include the composition of unique trade identifiers, product identifiers and other approaches to cross-border deference. The appointment of Ashley Alder as the incoming chair of the FCA at the start of next year should re-affirm the role of the UK as complying and contributing to internationals standards of best practice – and this is not just restricted to MiFID, SFTR and EMIR, but regulations covering crypto-assets, and anti- money laundering."

In response to the question of whether the EU will follow the footsteps of the UK, McDonald says that “going forwards the EU will also gradually adopt standards along the same line as the UK, for instance, the EU is committed to adopting ISO 20022 for EMIR reporting by the end of Q1 2024. Liberalization of the commodities market, better policing of the trading venue perimeter, and the meaning of a multilateral venue are all areas that both the EU and the UK are reforming in the same direction as the global market practices."

One of EVIA’s short-terms goals is to look forward to ways of “expanding the global markets to more products including digital finance, decentralized finance and better way of listing and trading secondary markets such as crypto-assets. “ McDonald observes “that most of the liquidity in wholesale markets has long been driven by the dealer intermediated banking system and following post-GFC reforms together with this DEFI revolution, so ongoing reviews of the market system are required. We are witnessing regional subsidiarisation, outsourcing, and the entrance of new liquidity providers all taking hold of the markets, which together with product innovation is leading to a more balanced market". Looking forward, he points to "smart" or self-executing contracts, together with digital regulatory reporting as the most consequential innovations for wholesale markets. These will put more reliance on both standardisation and harmonisation efforts.

Alex McDonald - CEO, European Venues and Intermediaries Association (EVIA)