The UK Government is taking significant steps to reform the Markets in Financial Instruments Directive and Regulation (MiFID II / MIFIR) package, aligning with a broader agenda to enhance the competitiveness and dynamism of the financial services sector. These changes, announced alongside Chancellor of the Exchequer Rachel Reeves’ Mansion House Speech on 14 November 2024, promise to modernise the regulatory framework, reduce unnecessary burdens on firms, and reinforce the UK’s status as a global financial hub.

Key MiFID Reforms: A Competitive Edge

The reforms to MiFID, underpinned by the Financial Services and Markets Act 2023, include:

  • Strengthening Commodity Derivatives Oversight: The FCA will gain expanded powers to oversee OTC position reporting. This move, informed by lessons from the Nickel market crisis in 2022, aims to bolster market stability without imposing undue burdens on firms.
  • Streamlining Transaction Reporting: MiFIR’s firm-facing transaction reporting requirements will be revoked, and a more efficient FCA-led regime will replace them, cutting costs while ensuring effective oversight.
  • Delegating Organisational Requirements: Firm-facing organisational regulations will move into the FCA Handbook, enabling more flexible and responsive updates to emerging market risks. These reforms are part of a broader government initiative to position the UK’s financial services as a driver of sustainable growth. The Chancellor noted in her speech:

“Where we have strengths, we must build on them. Where we have weaknesses, we must address them.”

Reforms in Context: Broader Growth Agenda

The MiFID reforms align with the government’s ambitious pro-growth agenda, which the Chancellor emphasised in her speech:

  • A Growth-Focused Regulatory Approach: Growth and competitiveness are now central objectives for UK regulators, with new remit letters issued to the FCA and PRA. This reflects the Chancellor’s commitment to “rebalancing regulation” to support innovation and investment while maintaining stability.
  • Reinvigorating Capital Markets: Measures such as creating PISCES, a new stock market to support scaling businesses, and a Financial Services Growth and Competitiveness Strategy underscore the focus on making UK capital markets more attractive.
  • Learning from the Past: The speech highlighted the need to move beyond the “regulate-for-risk” mindset post-global financial crisis, which has, in some cases, constrained market dynamism. The Chancellor stated:

    “The UK has been regulating for risk, but not regulating for growth. Now is the moment to rebalance our approach.”

What It Means for Regulated Firms

For firms operating in wholesale capital markets, these reforms offer both challenges and opportunities:

  1. Enhanced Reporting and Oversight: Firms involved in commodity derivatives must prepare for revised reporting standards and increased FCA oversight to ensure transparency and stability.
  2. Reduced Regulatory Burden: Streamlined transaction reporting and updates to organisational requirements will lower compliance costs and allow firms to focus more on growth and innovation.
  3. Engagement with Regulatory Transition: Firms must actively engage with the FCA’s consultations and new frameworks to ensure smooth compliance and take advantage of opportunities arising from the reforms.

A Call to Action

Rachel Reeves’ Mansion House Speech reinforced the government’s determination to partner with the financial services sector to “unlock its potential” and ensure the UK remains a leading global financial centre. Firms should seize this moment to align their strategies with these transformative changes.

References

For more information on the topics discussed in this article, please refer to the following official resources:

  1. Next steps for reforming the UK Markets in Financial Instruments Directive
    This policy paper, published by HM Treasury on 14 November 2024, outlines the legislative and regulatory changes to MiFID, including implications for firms in wholesale capital markets.
  2. Mansion House 2024 Speech Collection
    You can access the full transcript of Chancellor Rachel Reeves’ Mansion House Speech and related materials, which provide context for the government’s broader financial services reform agenda.

For tailored insights and updates on how these developments may affect your business, contact CG Regulatory Solutions today.