HM Treasury's Wholesale Markets Review
HM Treasury published its Consultation Response in March 2022, and its proposals will be implemented through a combination of legislation and regulatory developments. The UK’s Financial Services and Markets Bill 2022-23, which proposes a broad range of changes to the UK’s financial services sector, incorporates a number of the recommendations proposed in the Wholesale Markets Review. In parallel, the UK’s Financial Conduct Authority (FCA) has been tasked with implementing some of the new proposals through new and existing regulatory powers.
White and Case note there are at least three key themes within the Wholesale Markets Review: (1) addressing economic inefficiencies, (2) improving securities regulation, and (3) promoting regulation over legislation. They say:
On addressing economic inefficiencies:
The recast Markets in Financial Instruments Directive (MiFID II) introduced a number of structural reforms to the securities regulatory framework in the EU (including, at the time, the UK). These reforms were driven, in part, by the 2008 financial crisis, as there was an increased emphasis on market transparency and the need to strengthen investor protection. Several of the proposals introduced by the Wholesale Markets Review seek to address developments in the UK economy since MiFID II was implemented.
On improving securities regulation:
In addition to reducing what it identified as unnecessary costs and burdens on market participants, the Wholesale Markets Review sought to improve certain aspects of the UK securities regulatory framework.
On promoting regulation over legislation:
The Wholesale Markets Review’s third core theme is a move from prescriptive legislative requirements in favor of regulatory powers to presumably allow for increased flexibility, particularly in cases where the regulator may need to act quickly to address market movement.
On the potential for similar reforms in the United States:
Similar reforms may be on the horizon in the US where US Securities and Exchange Commission (SEC) chair Gary Gensler used a June 2022 speech6 to outline plans to reform the US equity market. The changes, which were at the “proposed rule stage” on the SEC’s regulatory agenda for spring 2022, aim to modernize requirements around equity market competition and structure, including those concerning order routing and PFOF, conflicts of interest, best execution, market concentration, pricing increments, transaction fees, core market data and disclosure of order execution quality statistics.
