Q1: What views have been expressed by stakeholders on the Financial Conduct Authority’s (FCA) use of the temporary powers?
A1: HM Treasury engaged with a wide range of stakeholders, representing large international firms as well as smaller UK businesses, and held detailed discussions on the SI’s provisions. Industry participants were supportive of the approach taken in granting the FCA these temporary powers and thought it was a sensible way of dealing with the transparency issues presented by MiFIR as a result of the UK’s exit from the EU. HM Treasury received no objections from any of the industry stakeholders on the way these powers would be used by the FCA.
Q2: Why has the FCA not already made a statement of policy on how these temporary powers will be used, in time for Parliament to consider that statement alongside these draft Regulations?
A2: The FCA published its first consultation on its approach to dealing with the UK’s exit from the EU on 10 October, which will last until the beginning of December. A further consultation is planned dealing in particular with the Binding Technical Standards (BTS) in respect of the MiFID II transparency provisions. A properly considered statement of policy on the use of the temporary powers would need to be informed by these consultations, and as such could not be completed in time to be considered alongside these draft Regulations.
Furthermore, HM Treasury would be required to approve the FCA’s statement of policy prior to its finalisation and publication. HM Treasury may refuse to approve the statement of policy if its issuance would prejudice any current or proposed negotiations for an international agreement between the UK and one or more other countries, international organisations (including the EU) or institutions; or under section 410 (international obligations) of FSMA. These provisions are outlined in Regulation 15(5) of the draft Regulations, which inserts a new Regulation 47B on “Statements of Policy” in the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017.
Q3: Given that the Explanatory Memorandum states that “the FCA will not have sufficient data or resources during the transitional period to comply with such transparency conditions”, how confident is HMT that the FCA can effectively manage the responsibilities which will devolve upon it as a result of these Regulations?
A3: The temporary powers being granted to the FCA during the transitional period are necessary to enable the FCA to operate the transparency regime in a manner that will uphold market stability during a period of potential market disruption as a result of the UK’s exit from the EU. Beyond the transitional period, HM Treasury is confident that four years is an appropriate period of time in which the FCA is able to become operationally ready to carry out its functions relating to transparency under this Regulation and its implementing measures. This is because the FCA estimates that this is the amount of time that it will require in order to complete the following actions before it is operationally ready:
24 October 2018