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Commodity Standing Group (COMSG). I Regulatory background. Current lighter touch regime for UK commodity firms not undertaking ISD Investment Business MiFID to replace ISD and extend definition of Financial Instruments to include commodity derivatives

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Presentation Transcript
i regulatory background
I Regulatory background
  • Current lighter touch regime for UK commodity firms not undertaking ISD Investment Business
  • MiFID to replace ISD and extend definition of Financial Instruments to include commodity derivatives
  • Some previously exempt firms captured  full capital and COB requirements required by CRD and MiFID
i regulatory background1
I Regulatory background

MiFID commodity exemptions

  • “Provided this is an ancillary activity to their main business, when considered on a group basis”

(2) “For persons whose main business consists of dealing on own account in commodities”

  • However, European Commission review of exemptions in 2007 at which time they may be removed
i regulatory background2
I Regulatory background

MiFID timeline

  • Level 2 text prepared on the definition of commodity and commodity derivatives
  • Frequent European Securities Committee (ESC) meetings on MiFID - last expected on 27/28 September 2005.
  • Then Commission to propose text to ESC and Parliament
  • ESC vote probable in mid-December
  • Likely implementation date of 30 April 2007
  • FSA plans to publish CP in November
  • Prior FSA pre-consultation  COMSG
i regulatory background3
I Regulatory background

CRD timeline

  • Committee on Economic and Monetary Affairs (ECON) vote on 13 July 2005
  • Currently: Council attaches meetings to assess Council view on Radwan Report
  • Frequent “Troikas” (Commission/Presidency/European Parliament) to negotiate common ground between Council/EP
  • EP Plenary vote w/c 26 September
  • Aim is for agreement on Directive in single parliamentary reading
i regulatory background4
I Regulatory background

Impact

  • Firms caught by MiFID and not subject to exemptions
    • CRD applies in full
    • Focus on CRD implementation – limited flexibility and discretion
  • Non-MiFID firms falling within FSA’s perimeter
    • Greater discretion and flexibility in policy development
ii role of comsg
II Role of COMSG

Pre-consultation forum to:

  • Foster discussion between FSA and commodity industry
  • Provide FSA with information on state of the market
  • Provide industry with information on regulatory process and proposals
  • Clarify current policy treatments and how they would be applied to commodity firms
  • To provide industry with an opportunity to input into the policy making process
  • Collaborate with firms to address issues of policy implementation and the monitoring of compliance with policy
ii role of comsg mifid firms
II Role of COMSG: MiFID firms
  • To identify main impacts of implementing MiFID and CRD on industry, e.g.
    • Practical implementation issues
    • Monitoring of compliance
  • To consider policy issues arising from MiFID and CRD
  • Identify areas where further commodity specific guidance may need to be issued to implement MiFID/CRD
  • COMSG will discuss but cannot determine MiFID exemptions policy (HMT jurisdiction)
ii role of comsg non mifid firms
II Role of COMSG: non-MiFID firms
  • FSA/COMSG to consider domestic policy issues not covered by MiFID or CRD
  • For example the continuation of a light touch regime for those non-MiFID firms falling within FSA’s perimeter
ii role of comsg industry s input
II Role of COMSG: industry’s input

FSA needs industry help to:

  • Identify the main impact of, and issues for, commodity firms implementing MiFID and CRD
  • Develop the COMSG agenda providing views on the appropriateness, and practicality, of the FSA’s proposed solutions to policy issues
  • Offer alternative solutions to policy issues where proposals are considered inappropriate
  • Review and provide suggestions for improvements to its Handbook
  • Assist in assessing the overall cost and benefits for UK firms of implementing proposals
ii role of comsg future developments
II Role of COMSG: future developments
  • To consider potential future review of the commodity regime by the Commission
  • Identify the substantive issues that need to be raised in other international fora
ii role of comsg first meeting
II Role of COMSG - first meeting
  • MiFID and CRD update
  • Discussion of industry concerns including:
    • Whether FSA\'s authorisation process could deal with mature as opposed to new businesses
    • Displacement of financial firms from the UK
    • The potential of a handbook tailored to commodity firms
    • Concentration rules in respect of RCHs & REs
  • Minutes and terms of reference available on FSA website
  • www.fsa.gov.uk/Pages/About/What/International/basel/csg/comsg/index.shtml
ii role of comsg forward agenda
II Role of COMSG - forward agenda
  • Discussion of the approval process for use of internal models:

(1) Market risk models

(2) Credit and operational risk models

  • Scope of consolidation issues
  • COB issues
  • Non-MiFID regime
  • Other issues raised by industry
ii role of comsg regulatory timetable
II Role of COMSG – regulatory timetable

MiFID firms

  • MiFID
    • CP in November 2005
    • 3 month consultation period
    • MiFID implemented 30 April 2007
  • CRD
    • CP in February 2006 setting out the draft Handbook text implementing CRD
    • 2-3 month period consultation period
    • CRD implemented 1 January 2007

Non-MiFID firms

  • Likely to intensify consultation early 2006
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