Market infrastructure: What’s on the horizon in 2020?

I think there are probably three themes to highlight. The first one is in relation to wholesale conduct.  So I think the FCA, in particular, is focussing on this at the moment – we’ve seen that with the five conduct questions and also the extension of the senior managers regime to solo-regulated firms at the end of last year.

I think we’ve also seen particular areas of focus, so, for example, personal account dealing and conflicts of interest – those are definitely areas that firms need to make sure they have under control.

The second area I would mention is in relation to European regulation that has come in over the last few years. The regulators have already started to look at whether that’s really achieving its objective to realign it where it isn’t and I think there are a few areas where we might see some changes going forward. First of all in relation to commodity derivatives to market data and also in relation to FX potentially.

And then the third theme I would mention is a really important one which is operational resilience, and I think it’s particularly important in the market infrastructure space. So we’ve seen this both at UK and European level where the regulators are looking at whether there are really enough controls around arrangements that firms have in place in relation to things like outsourcing, outsourcing to the cloud in particular and cybersecurity and those are all areas which will impact on things like documentation, legal agreements, governance, processes, etc.

There are a couple of important changes in relation to reporting this year. So the first one is in relation to EMEA. Some of the relaxations that were brought into effect with EMEA refit will come into effect in June this year. That’s really where financial counterparties that are dealing with non-financial counterparties that don’t exceed the clearing thresholds – so what we call NFC. The financial counterparties will need to report on behalf of the NFC – or rather that would be the default expectation – unless the NFC requests otherwise. So there may be some changes to existing delegated reporting arrangements there.

And then the second and perhaps bigger change is in relation to the securities financing transaction regulation, so that will mean that counterparties will have to start reporting securities financing transactions this year, so when the reporting obligations start depends on the type of counterparty so banks and investment firms will go first in April this year and then funds and their managers will pick this up in October this year.

The transitional period in relation to European index providers has come to an end, so that means that supervised users should now only be using European benchmarks where they have been authorised or registered by in a member state. It’s a bit more complicated in relation to third country benchmarks, where that transition period still continues until the end of 2021. The second thing to bear in mind is that there are some changes to the benchmark regulation last year which mean that there will be two new types of benchmarks coming into effect from April this year. Those are EU climate transition benchmarks and Paris-aligned benchmarks and in addition to that, all types of benchmarks will have to start taking into account, will have to start making changes in relation to ESG factors. So they’ll have to, for example, they will have to explain in their benchmark statements whether they take those factors into account, and if so, how.

And then the third thing I would mention is the benchmark administrators in the UK will start to become subject to the senior managers regime from December this year. So, quite a lot going on and all of this obviously in the context of LIBOR transition as well.

The best place to look for more information is our blog, Regulation Tomorrow, that tracks all of these developments and many more in relation to market infrastructure.