Markets View - February 2026

Markets View is back after a short hiatus. In this issue, as it’s still (just about) the start of 2026, we wanted to offer a sneak peek at what we’re seeing coming down the tracks this year and beyond. In short, there’s something for everyone! As always, we’d be delighted to hear if you have any questions at all.

UK Basel 3.1 Implementation

PRA-authorised firms will have seen that the Bank of England has just published the final version of its rules implementing Basel 3.1 (PS1/26). The vast majority of these rules are due to enter into force in January 2027, when the relevant provisions of the EU-inherited CRR will also be revoked. Firms therefore have the rest of this year to prepare for the new rules.

However, the entry into force of the rules implementing the modelled part of the market risk rules (the “Fundamental Review of the Trading Book” or “FRTB”) has been postponed to January 2028, to allow lessons to be learnt from related implementation in the US and EU.

The relevant detail regarding the postponement and the Bank’s final approach to the FRTB is set out in PS1/26. There are a few changes to digest vis-à-vis the proposals set out in last year’s consultation CP17/25. Until we reach implementation in January 2028, firms can stay on their current market risk models.

UK Best Execution Review for Wholesale Banks

While it’s not a 2026 item per se, we wanted to touch briefly on the review published by the FCA last December into best execution in UK listed cash equities. It shines a spotlight on how wholesale banks are (broadly) meeting their best execution obligations to their clients, while also offering useful takeaway observations and good practice indications. It’s worth ensuring these didn’t get lost in the pre-Christmas rush!

The FCA noted a strengthening of industry practices since its last thematic review in 2014, particularly in relation to banks’ scoping of best execution obligations, and their internalisation practices (while reiterating the corresponding need for rigorous assessment and robust controls).

Governance and oversight was flagged as being the area with least progress. The FCA found that, while banks have reasonable frameworks in place, the quality of oversight and challenge from the second line of defence is mixed. The best outcomes were found in banks that had empowered compliance functions, backed by the right data and tools.

On monitoring, the FCA noted improvements in both real-time and post-trade analytics. However, the variable quality of supporting MI remains a key area of lingering concern, in some cases being too high-level or overly complex, leading to weaker challenge and scrutiny by senior management.

EU & UK Consolidated Tapes

Consolidated tapes will continue to be in the limelight in 2026, as the EU and UK begin rolling out these key new pieces of infrastructure for relevant markets.

EU CTPs: Ediphy (fairCT) was selected last year as the CTP for bonds in the EU and is due to launch this year. EuroCTP was selected as the CTP for shares and ETFs and is expected to launch in Q3 2026. The selection procedure for the EU CTP for OTC derivatives was launched on 05 January 2026, with requests to participate due by 11 February 2026.

UK CTPs: The FCA’s target date for go-live of the UK’s bond CTP (for which the contract has just been awarded to Etrading Software (ETS)) is 22 June 2026. On the equity side, the FCA issued a consultation back in November 2025, which is open until 13 February; a Policy Statement should follow this summer, with operation slated for 2027. There is no immediate expectation of a UK CTP for OTC derivatives.

Accelerated Settlement: CSDR move to T+1

As is hopefully familiar news, the UK, EU and Switzerland will be transitioning to T+1 settlement on 11 October 2027, following similar transitions in other jurisdictions. Though this may seem far off, there is a lot of work for firms to do to ensure readiness (particularly to safeguard against EU CSDR’s cash penalties for settlement fails).

The Investment Association has just published a report on T+1 implementation across all three jurisdictions, which should be a great help to investment management firms negotiating these changes.

For UK firms, it is worth keeping an eye on the FCA’s handy webpage, which sets out the actions they expect firms to take in 2026. A separate FCA letter specifically looks at certain changes they expect asset management and alternative firms to have implemented by the end of 2026.

UK Commodity Derivatives Regime

The FCA’s Policy Statement (PS25/1) on the commodity derivatives regulatory framework is set to come into force on 06 July 2026. As detailed in our February 2025 edition, the regime contains a reworked position limits regime (for “critical” and “related” contracts), along with new exemptions, position management controls and reporting requirements (including for OTC data).

One key – and deliberate – effect is to give the trading venues (IFEU and LME) significant influence over the shape of the new regime and its supervision. Members should expect a busy few months as both houses work to finalise their rules and policies, and (from April) start to process exemption application requests (existing exemptions will not be grandfathered).

UK MiFID Ancillary Activities Test

The FCA’s Policy Statement PS25/24 has given us the final form of the UK’s Ancillary Activities Test (AAT), which determines when commodity market participants may rely on the Ancillary Activities Exemption (AAE) from FCA authorisation. The new regime will come into effect on 01 January 2027. Firms wishing to rely on the test should prepare to be able to demonstrate to the FCA how they comply (if asked – there is no obligation to notify).

The FCA consulted last summer on its proposals in CP25/19. As we set out in an Insights article at the time, it proposed three distinct and independent tests: a (new) annual threshold/de minimis test, a revised trading test, and a revised capital employed test. The FCA has kept the final form of the AAT broadly consistent with the proposals, subject to a couple of points worth noting:

• it has removed exchange-traded derivatives from the scope of the annual threshold test (which will now be set at £3bn and apply solely to OTC cash-settled commodity derivatives)
• it has decided not to introduce an automatic adjustment mechanism for the £3 billion threshold. Any future adjustments to the threshold will be subject to formal consultation.

Carbon Markets: ETSs & CBAMs

EU ETS: Significant changes are coming down the tracks. The Commission is due to report in July on several potential scope extensions, including coverage of “negative emissions” (aka as carbon credits), more operators and more sectors. This year also marks a step-change for the standalone “ETS II” (for road transport, buildings, and small industries): reporting requirements are now live, and we look ahead to the go-live for surrendering allowances in 2027 (unless delayed by a spike in oil and gas prices).

UK ETS: It's a similarly busy picture on the UK side. One focus for 2026 will be the rollout of the expansion to the domestic maritime sector from 01 July (though the first deadline to surrender UKAs is not until April 2028). Beyond that, there is work to do to bring international maritime onboard from 2028, among other sector extensions. Looking even further ahead, in the coming months we can expect a consultation on the planned cap profile for ‘Phase II’ of UK ETS (set to run from January 2031 to December 2040).

Like in the EU, there are plans to add certain carbon credits to the UK ETS. Following a consultation in 2024, the UK ETS Authority is moving to bring engineered greenhouse gas removals (GGRs) into the UK ETS by the end of 2028 aiming for integration to be operational in 2029. The current plan is to include only engineered GGRs in the UK in the ETS. They will be subject to robust verification, strong environmental integrity, and measures to maintain market stability: see the UK ETS Authority responses.

CBAMs: On the Carbon Border Adjustment Mechanism (CBAM) front, the EU has moved into a new phase of operation as of this year, with affected importers now being obliged to surrender certificates. The UK CBAM is slightly further behind, with implementation due from 01 January 2027 (see our previous Simmons Insight on this).

UK-EU Deal: A final, tantalising prospect is that the UK and EU authorities are actively working up a deal (first floated last year) for re-linking the two ETSs. This would be a real game-changer, not least by providing a mutual exemption from CBAMs. It’s by no means a certainty, but definitely one to watch out for.

UK Short Selling Regime

Last year saw the key legislative step for the UK’s repeal of the EU-inherited SSR and its replacement with a new UK-tailored regime. We set out the details in an Insights article last October, but by way of brief reminder, the proposals point to a number of changes under the new regime, including:

• a requirement on the FCA to publish all net short positions in anonymised and aggregated form (rather than individual net short positions above 0.5%)
• a requirement on the FCA to publish and update a definitive list of non-exempt shares in relation to which the rules apply (the “reportable shares list”, or RSL)
• restrictions on uncovered short selling of UK sovereign debt and sovereign credit default swaps (CDS) will fall away

Importantly, however, the revocation will not actually take effect until the FCA’s own rules commence. We can expect to see a phased implementation of the regime in the coming months, based on the “main commencement day” falling in June, as captured in the FCA’s timeline here.