Policy paper

Next steps for reforming the UK Markets in Financial Instruments Directive

Published 14 November 2024

Most of the rules that govern wholesale capital markets are set out in the Markets in Financial Instruments Directive (MiFID II). In 2021, HM Treasury launched the Wholesale Markets Review (WMR) with the aim of reforming the MiFID framework so that it is fair, outcomes-based and supports competitiveness, whilst ensuring the UK maintains the highest regulatory standards.

The Financial Services and Markets Act (FSMA) 2023 delivered the outcomes of the WMR where there was clear support for the proposals and where changes were most urgently needed, for example removing the Double Volume Cap and Share Trading Obligation which restricted trading unnecessarily.

The Act also delegated responsibility to the independent and expert Financial Conduct Authority (FCA) for reforming the UK’s commodity derivatives and transparency regulatory regimes to strengthen the UK’s position in global wholesale markets.

Today HM Treasury has committed to make further legislative changes to the MiFID framework as part of the government’s commitment to reinvigorate our capital markets so that they deliver for investors, for firms, and to support growth across the UK.

First, to support the FCA’s work to maintain the UK’s commodity derivatives markets world leading position, HM Treasury has committed to legislate to give the FCA fuller powers of direction in relation to the reporting of OTC positions. Applying the lessons learned from the events in the Nickel market in March 2022, this approach will help the FCA to ensure that exchanges receive the right transparency about OTC positions, proportionate to the risks associated with different markets. This will enable exchanges to operate their position management responsibilities effectively, without introducing unnecessary burdens on firms. It will also enable the FCA to intervene where it considers that position presents a risk to market stability.

Second, using the powers established by FSMA 2023, HM Treasury has committed to commence the revocation of firm-facing requirements in the Markets in Financial Instruments Regulation (MiFIR) that pertain to transaction reporting, and delegate the setting of a new regime to the FCA. This will enable the FCA to explore long-term solutions to the issues related to transaction reporting brought to the government’s attention during the Wholesale Markets Review. Delivering a streamlined regime will cut costs for businesses, while ensuring effective regulatory oversight of our world leading capital markets.

Third, HM Treasury will revoke the firm-facing regulations within the Markets in Financial Instruments Directive (MiFID) Organisational Regulation so that they can be replaced in the FCA’s handbook. It is the government’s view that delegating responsibility for setting these direct regulatory requirements to the regulators, ensures that our expert regulators’ real-world, day-to-day experience of supervising financial services firms is central to the regulatory policymaking process. It also provides flexibility for the regulators to update standards efficiently in response to emerging market trends and risks.

HM Treasury will liaise with the FCA and PRA to ensure that any revocations coincide with the FCA and PRA’s replacement rules and provide a smooth transition for firms.