Markets View - August 2025

Welcome to the August edition of Markets View! As the summer rolls on, we’re here to indulge your cravings for news of regulatory developments in the financial markets space.

This month’s action-packed edition has a particularly strong MiFID and EMIR flavour, as we take stock of a range of developments on both sides of the Channel: from changes to transaction reporting, progress on consolidated tapes, measures under the EU’s MiFID3 and EMIR 3.0 that are soon to go live, and new proposals to shake up the UK regimes for SIs and CCPs – and more!

We hope you find this month’s updates insightful, and as always, feel free to reach out if you’d like to discuss any of these topics further!

From Check-In to Check-Out: FCA Focuses on Banks’ Transaction Governance Regimes

On 07 August, as part of a wider set of insights on wholesale banks supervision, the FCA published its findings from a review of transaction governance in wholesale banks.

The review looked in-depth at the governance arrangements for the 50 most recent transactions submitted to transaction governance committees by each of six banks. The FCA found “no widespread weaknesses” but did observe differences, with some having more robust processes.

The review highlights several key best practice recommendations for banks:

• Risk appetite: The findings point to the need to cover financial and non-financial (e.g. reputational) risk. Reputational risk appetite, in particular, should be clearly defined and monitored.
• Framework: Personnel involved should understand the transaction governance structure (an organogram and process chart can help) and be able to provide an overview.
• Transaction screening: The FCA regards this as key for identifying risks, mitigants, conditions and refinements, which should be well documented and recorded.
• Transaction assessment/approval: The “better” approach identified was for the 1st LoD to put forward the business case and risks, and for the 2nd LoD to challenge and enhance the assessment and propose conditions upfront.
• Minutes: The FCA found wide variance in form and detail of committee minutes, and noted that “clear, comprehensive and timely” minutes strengthen audit trails and accountability.

The findings also include some useful observations for firms, including encouragement to:

• Consider using technology (e.g. workflow tools) to enhance record-keeping, track implementation of conditions and ensure they are met before deal execution.
• Provide timely management information, including on reputational risk.
• Ensure appropriate UK representation, where overseas-originated transactions are booked into the UK, including clear authority to impose conditions or veto decisions and accept risk.

The review itself is only short and well worth a read. The FCA’s findings serve as a timely reminder for wholesale banks to review and strengthen their transaction governance frameworks. By adopting the recommended best practices and addressing identified gaps, firms should be able to enhance their risk management and decision-making processes.

Market Watch Out! Latest FCA Guidance on MiFID Transaction Reporting

The FCA’s Market Watch 82, published on 23 July, underscores the regulator’s ongoing focus on UK MiFID transaction reporting.

While the newsletter is not intended to impose additional burdens, it highlights what the FCA sees as persistent inefficiencies in firms’ operational frameworks. These contribute to delays in remediation and back reporting, thereby undermining data integrity and the detection of market abuse.

Remediation: The FCA stresses the importance of timely and transparent remediation to address operational deficiencies, errors and non-compliance. Firms are urged to adopt a proactive approach, with common challenges noted as including:

• Fragmented internal processes and siloed teams.
• Insufficient resourcing and competing business priorities.
• Weak governance structures and lack of accountability.

Back Reporting: Market Watch 82 sets out several case studies on back reporting (i.e. correction of inaccurate or incomplete transaction reports). Key themes include:

• The importance of robust governance to prioritise and sequence actions effectively.
• Risks arising from data access issues, such as inaccessible historical records.
• The need to balance back reporting efforts with business-as-usual (BAU) processes to avoid further reporting inaccuracies.

Breach Notifications: The FCA also suggests best practices for breach notifications, which it views as essential for maintaining data quality. It received 241 breach notifications in Q1 2025 and continues to monitor quality closely. Firms are encouraged to submit clear and detailed notifications, including precise issue descriptions, root cause analyses, and actionable plans to address weaknesses in systems and controls.

The FCA reiterates the importance of linking weaknesses in systems and controls to the reported issue and providing specific, actionable insights rather than generic commentary. These observations build on themes explored in Market Watch 81, which examined root causes in greater detail, and which we covered in our November 2024 edition.

Firms are advised to integrate these insights into their compliance frameworks to improve reporting accuracy and operational resilience. You can read the full update here.

Packing Light: FCA Seeks to Cut Excess Baggage from UK SI Regime

You may have seen the FCA recently published Consultation Paper CP25/20, proposing changes to simplify and modernise the MiFID-derived regime for Systematic Internalisers (SIs). The key proposals include:

1. Removing the SI Regime for Certain Instruments: The FCA plans to remove the SI regime for bonds, derivatives, structured finance products, and emission allowances, as it offers little benefit while creating unnecessary compliance burdens. It finds that, for all these products, the regime does not significantly improve competition, transparency, or the assessment of best execution.

2. Lifting Restrictions on Firms Operating Both an SI and an Organised Trading Facility (OTF): The FCA proposes removing the rule that prohibits firms from operating both an SI and an OTF within the same legal entity. Currently, the rule applies broadly across all instruments, meaning a firm acting as an SI for equities cannot operate an OTF for non-equities, which the FCA sees as inconsistent with the rule’s original intent. The prohibition on connecting an OTF with an SI is also considered unnecessary. Removing these restrictions will give firms greater flexibility and reduce regulatory burdens.

3. Allowing Matched Principal Trading by Multilateral Trading Facility (MTF) Operators: The FCA plans to remove the ban on MTF operators engaging in matched principal trading, which is currently intended to prevent conflicts of interest. However, this restriction has proven costly and unnecessary, given that existing rules already require MTFs to manage conflicts effectively, and has often led to additional entities being created within a group to act as a broker on the MTF. Lifting the ban is intended to help firms simplify operations, reduce costs, and promote competition, without compromising on market integrity. No doubt this is a welcome change for new market entrants but we expect that those who already created these additional entities are unlikely to reverse the set-up adopted in 2017.

4. Reforming the Reference Price Waiver: The FCA proposes allowing trading venues to source and combine reference prices from multiple venues, reducing reliance on a single venue and potentially improving execution quality. It is also considering applying the waiver to individual orders rather than entire systems, enabling better interaction between "lit" (public) and "dark" (private) liquidity pools and reducing market fragmentation. These changes aim to create a more level playing field between trading venues and OTC markets.

The consultation also includes a discussion paper seeking views on the structure and transparency of UK equity markets – in particular, the declining use of central limit order books and the rise of bilateral trading – which will inform future proposals expected in 2026.

Comments on both the consultation proposals and the discussion questions are due by 10th September, with final rules on the proposals anticipated in Q4 2025.

Are We There Yet? The Long Journey to EU and UK Consolidated Tapes

There have been several developments regarding CTPs, both from an EU and a UK perspective, since our last overview in February’s edition of Markets View.

On the EU side:

• In July, ESMA announced that it had selected Ediphy (fairCT) as the first CTP for bonds. Ediphy still needs to obtain authorisation, and is expected to apply forthwith. Following authorisation, Ediphy (fairCT) will operate the CTP for bonds for five years.
• The selection procedure for the CTP for equities (shares and ETFs) is now underway: interested firms should by now have registered, with the successful applicant expected to be identified by the end of 2025. We now also have ESMA’s first list of data contributors (i.e. in-scope trading venues) to the equity CTP.
• The selection procedure for the CTP for OTC derivatives is (still) slated for launch in early 2026.

You may also have seen that the Commission recently adopted a slew of technical standards for CTPs (among other things), which are expected to enter into force later in 2025. These provide further detail on key related items such as:

• Authorisation requirements for CTPs
• Input and output data
• Revenue redistribution
• The obligation to make market data available on a “reasonable commercial basis”

Meanwhile, on the UK side:

• The FCA now has a shortlist of bidders to be CTP for bonds, and has opened the price auction phase to the remaining bidders. Once the FCA has selected a bond CTP, the successful bidder will similarly need to sign a contract with the FCA for the service and complete the relevant authorisation process. The UK bond tape is expected to go live in 2026.
• On the equities side things are again a bit further behind. However, back in May the FCA put out a notice to potential CTPs to express their interest and engage in discussions, and we understand it is currently surveying a sample of potential CTPs and CT users to help inform its proposals. It is due to publish a full consultation paper on the CT framework by the end of 2025, and a formal tender notice in July 2026 (estimated).

Now that the first CTPs are (finally) nearly with us, it’s a good time to consider the market impact they are likely to have. For FT subscribers, we recommend checking out a recent Alphaville column on this, which looks at the potentially transformative effect on price discovery, pricing and more – including the expected divergence for small vs block trades, and EU vs UK bond markets.

Catching a Waive(r): New EU Single Volume Cap Mechanism for Transparency

Another MiFID regime-related change shortly coming into force in the EU is the switch from the double “volume cap mechanism” (VCM) to a new single volume cap. The VCM limits the amount of “dark” trading in equity and equity-like instruments that can take place on a trading venue under pre-trade transparency waivers – specifically, under the “reference price waiver” and the “negotiated transaction waiver.”

The existing “double” volume cap mechanism uses two thresholds to limit the amount of dark trading in equity and equity-like instruments under both these waivers. In summary, such trading may not:

• at an individual venue, exceed 4% of the total EU-wide trading volume; or
• across all venues, exceed 8% of the total EU-wide trading volume.

From 29 September 2025, a new “single” volume cap threshold, which is set at 7% of the total EU-wide trading volume, will apply to the “reference price waiver”, but not to the “negotiated trade waiver”.

The limit for each instrument will be calculated by reference to trading data published by ESMA (here). If it is exceeded, trading venues will need to suspend the use of the waiver for the concerned instrument for a period of three months.

The first publication of trading data by ESMA is expected on 09 October 2025. ESMA has submitted for adoption amendments required to RTS 3, but the VCM switch will take effect even if the RTS 3 revision is not yet in place. If you think you may be impacted, now is the time to check!

UK-Swiss Agreement: Climbing the Mountain of EMIR Equivalence

On 21 July, the UK Government published a draft Statutory Instrument (the FSMA 2023 (Mutual Recognition Agreement) (Switzerland) Regulations 2025) to implement the Berne Financial Services Agreement (BFSA), which was signed in December 2023 but is not yet in force.

The BFSA introduces mutual recognition of UK and Swiss regimes for CCPs and provides counterparties to OTC derivatives the option to comply with either UK or Swiss rules (rather than both). The draft regulations are expected to come into force on 01 January 2026, with the FCA, PRA and Bank of England gaining new powers to support implementation.

At the same time, the government also laid before Parliament a further Statutory Instrument (SI 2025/898), also due to come into force on 01 January 2026, to give legal effect to these BFSA commitments in UK law by confirming HM Treasury's equivalence determinations under UK EMIR for Switzerland’s regimes for uncleared OTC derivatives and CCPs. In brief summary:

• OTC Derivatives: Switzerland’s risk mitigation requirements for uncleared OTC derivatives are deemed equivalent to the UK’s, subject to certain conditions (Reg. 3), and so UK firms transacting with Swiss counterparties do not have to comply with both sets.
• CCPs: Switzerland’s CCP regime is also recognised as equivalent, paving the way for the Bank of England to consider recognising individual Swiss CCPs, notably SIX x-clear (which is currently subject to temporary recognition). Such recognition would allow a Swiss CCP to operate in the UK on a non-time-limited basis.

For completeness, we note that the draft regulations also propose changes to cross-border licensing arrangements. Under the new rules:

• Swiss firms who apply for and obtain registration with the FCA for specific investment services (broadly, MiFID services) will be able to provide those services in the UK without needing full UK authorisation.
• The Overseas Persons Exclusion (OPE), which currently allows Swiss investment services firms to provide certain services into the UK market without authorisation, will be subject to a carve-out so that Swiss firms have to choose a single access route (OPE or FCA registration) for each activity, and cannot use both simultaneously.
• Amendments to the Financial Promotion Order will allow Swiss-registered firms to engage in financial promotion in certain circumstances without requiring authorisation or approval.

On-Shoring Up the UK CCP Regime

As part of the revocation and replacement of EU law, the Bank of England has published a Consultation Paper on the UK’s future regulatory framework for CCPs.

The consultation sets out the Bank’s proposed approach to replace most of the requirements that apply to CCPs in UK EMIR and related technical standards with Bank rules and policy materials, including Statements of Policy (SoPs) and Supervisory Statements (SSs) – drafts of which are annexed to the paper itself. The Bank also proposes to restate some policy material originally issued by ESMA into Bank rules or other policy material.

However, this is not a 100% like-for-like restatement, as the Bank is also proposing to make certain policy changes. There is (of course) a huge amount of detail on this in the consultation, but in short, the key areas of focus where the Bank proposes to make material changes include:

• Enhancing the change in control framework for CCPs (Chapter 8).
• Updating margining requirements, based on updated international guidance and proposals from BCBS, CPMI & IOSCO (Chapter 14).
• Increasing the likelihood of porting of client positions (Chapters 15 and 16).
• Adding “second skin in the game” (SSITG), i.e. a second tranche of CCP resources, to the default waterfall (in line with the default fund contributions of non-defaulting members), representing another 25% of the CCP’s risk-weighted capital requirement (Chapter 17).
• Incorporating key elements of ESMA’s 2018 Opinion on CCP liquidity risk assessment into Bank rules, thereby making them binding regulatory requirements (Chapter 18).
• Streamlining and improving supervisory processes (Chapter 21).
• Clarifying the approval process for interoperability arrangements, including bringing derivatives directly into scope of relevant rules (Chapter 24).

The Bank has also kindly made available a useful draft table that maps UK EMIR assimilated law provisions across to the new Bank rules.

The consultation closes on 18 November 2025. The Bank proposes to publish the final rules no earlier than the end of H1 2026, with a six-month implementation period (subject to a couple of exceptions where a longer period is envisaged).

We will be reviewing the detail of the Bank’s proposals alongside market commentary on the implications. As ever, we would be very interested to hear your thoughts.

The Sound of Summer? Even more UK EMIR News!

The Bank of England and FCA are consulting on two new draft EMIR reporting Q&As, respectively here and here. This builds on the Q&As which they previously published in 2024 – again, there’s both a Bank version and an FCA version. Look out for a separate S&S Insights article on these proposals, which we will be publishing shortly. Responses to the consultation are due by 12 September.

AAR You on Board? ESMA Issues Final Report on EMIR Active Accounts

On 19 June, ESMA published its Final Report on the Active Account Requirement (AAR) RTS. This follows an earlier Consultation Paper (CP) in November 2024.

To recap: the AAR aims to incentivise the clearing of certain Euro (EUR) and Polish Zloty (PLN) derivatives within the EU and reduce excessive reliance on clearing services provided by systemic third-country central counterparties (CCPs). As we outlined in our February 2024 edition, it contains two obligations on in-scope counterparties:

• Operational Obligations: to open and maintain an active account at an EU CCP for the AAR in-scope transactions; and
• Representativeness Obligation: for larger portfolios, to clear a “representative number” of those transactions in the active account, along with associated reporting obligations.

The AAR came into force as part of EMIR 3.0 on 24 December 2024, and the requirement to have an account has applied since 25 June 2025. However, the detailed requirements contained in ESMA’s draft RTS will not be effective until approved by the European Commission.

Which counterparties are in scope? Financial counterparties (FCs) and non-financial counterparties above the EMIR clearing threshold (NFC+s), who exceed the clearing threshold (individually or in aggregate) in any of the categories of transactions relevant for the AAR.

What transactions are in scope? For now, at least, interest rate derivatives (IRDs) denominated in EUR and PLN, and short-term interest rate derivatives (STIRs) denominated in EUR.

We have set out below some of the key changes and clarifications made by the Final Report, compared to the proposals in the CP:

Operational Obligations – accounts:

• The previous obligation to establish cash and collateral accounts at a CCP with "sufficient financial resources" has been removed. Instead, the focus is now on ensuring appropriate contractual arrangements.
• The requirement to appoint a dedicated staff member to monitor clearing arrangements has been replaced with a broader obligation to ensure "necessary human resources" are available.
• The certification process has been simplified: certification may now be provided electronically, and CC

Operational Obligations – annual stress testing:

• The test to verify compliance with the Operational Obligations has been substantially simplified.
• In particular, firms must demonstrate operational capacity to clear a three-fold increase in AAR in-scope transactions (replacing the previous 85% increase requirement); the need for a signed statement from the CCP has been removed; and all counterparties (regardless of size) must now meet the testing requirement.
• Note: while the ‘three-fold increase’ could, in theory, be achieved with one large trade, there is a risk this approach may not align with the “spirit” of the stress testing requirement.

Representativeness Obligation – asset classes/sub-categories:

• ESMA has retained the recommended classes for IRDs denominated in EUR and PLN. However, EUR STIRs now exclude options, leaving only futures.
• The maturity range for EUR STIRs has been extended from 12-18 months to 12-24 months.
• A new provision requires that the “average” trade size and maturity ranges cleared in the EU should reflect the “average” trade size and maturity of those products cleared by the counterparty at “Tier 2 CCPs” (i.e. systemically important 3rd-country CCPs, such as LCH and ICEU).

Representativeness Obligation – 6-monthly reports to NCAs:

• Reporting obligations have been significantly simplified in response to industry feedback:
• Activities and risk exposure: several fields in the reporting template have been deleted.
• Operational Obligations compliance: firms are now only required to provide a written statement (with supporting evidence to be made available on request).
• Representativeness Obligation compliance: requirements have been streamlined, including by removal of the need to report gross and net notional amounts for each subcategory and to report Unique Trade Identifiers (UTIs).
• Notwithstanding the above simplifications, there is still a lot of duplication of existing EMIR reporting requirements. We note ESMA has issued a Call for Evidence to gather feedback on creating a more streamlined framework for reporting across MiFIR, EMIR and SFTR (you can read our summary here).

Market consensus is that the Final Report is a substantial improvement from the CP, especially with regard to how it has streamlined aspects of the reporting requirements. However, there is still considerable uncertainty regarding how exactly the Representativeness Obligation, in particular, will be implemented and reported. Where that uncertainty cannot be resolved at EU level, firms should be ready to consult with their local authorities for guidance on compliance.