On 16 February, FIA submitted a response to the UK Financial Conduct Authority’s commodity consultation (CP23/27). The proposals in FCA’s paper are based on the UK’s wholesale markets review, initiated by HM Treasury in 2021.
FIA members support FCA’s goals of promoting market integrity and resilience, and preventing disorderly trading and settlement in the commodity markets. Members welcome many of the proposals included in the consultation, in particular:
- The introduction of a pass-through hedging exemption;
- The liquidity provider exemption;
- Narrowing the scope of the position limits regime to critical contracts;
- Transferring certain responsibilities for setting position limits from the FCA to trading venues; and
- Greater use of accountability thresholds in position management.
However, FIA members are extremely concerned about FCA’s proposed approach to the ancillary activities exemption, which is likely to be detrimental to the competitiveness of UK markets and to the ability of UK entities to access commodity derivatives and forward contracts on emissions allowances (physically or financially settled), many of which they currently use for hedging purposes. Members urge FCA to reconsider its approach and to reengage with HM Treasury as a matter of urgency to ensure that the regulator is empowered to make legally binding rules setting out the ancillary activities test.
FIA’s response also includes comments on several other aspects of FCA’s proposals, such as the proposals on enhanced reporting to include OTC positions, the implementation of accountability levels or the addition of ceilings for hedging exemptions.
FCA will now review responses to the consultation and is expected to publish final rules and guidance in the second half of 2024.
Further material:
FCA commodities consultation 23/27
HM Treasury’s response to the Wholesale Markets Review from March 2022
