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Commodity Standing Group (COMSG)

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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Commodity Standing Group (COMSG)

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  1. Commodity Standing Group (COMSG)

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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)

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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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