U.K.

Primary markets

2024 has seen significant progress made regarding the U.K.’s development of its new post-Brexit prospectus regime, as part of the U.K.’s wider efforts to reform its capital markets and enhance its attractiveness as a listing venue. As part of this, the U.K. regime will be replaced by the Public Offers and Admission to Trading Regulations 2024, with all detailed requirements relating to admission to trading to be covered in FCA rules. The FCA published its consultation paper (CP 24/12), and a second consultation paper (covering retail bonds and related points) is expected in January 2025. Final FCA rules are expected towards the end of H1 2025, with application anticipated at the end of 2025 or early 2026. A number of expected changes include streamlining the disclosure framework, introduction of the option for future financial information to be incorporated by reference without the need to publish a supplement, increasing the cap applicable to tap exemptions, and an alleviated liability regime for protected forward-looking statements. As with many of the U.K. “smarter regulatory framework” developments which are occurring in parallel with EU changes, there is some overlap but also some clear divergence in approach and detail.

Secondary markets

In 2025, the U.K. will see the launch of PISCES—the Private Intermittent Securities and Capital Exchanges System—a new type of innovative secondary market. This has arisen following industry feedback to the U.K. government following the U.K.’s Wholesale Market Review, which found (amongst other things) that there was industry appetite for a new type of trading venue facilitating intermittent trading. PISCES will be a regulated secondary market for trading of existing shares in intermittent trading windows. Only shares in companies whose shares are not admitted to trading on a public market (in the U.K. or other jurisdictions) will be eligible for trading on PISCES, and the market will only be open to institutional investors, employees of participating companies and high-net-worth individuals and self-certified or certified sophisticated investors.

In terms of the FCA’s progress on the launch of PISCES, on 17 December 2024, the FCA published its consultation on the regulatory framework for PISCES. It is intended for PISCES to be launched, and run for five years, using the FCA’s sandbox powers, as derived from FSMA 2023, which allows the FCA to disapply and flex existing regulatory rules on a temporary basis to support and promote innovation. The FCA will publish further information in early 2025 about pre-application engagement, and the necessary regulations (which were published in draft form in November 2024) are expected to be laid before parliament by May 2025, after which the FCA will publish final rules.

On transparency (including the new U.K. designated reporter regime) and transaction reporting, the FCA is expected to continue progressing the various changes that have been made under the transitional amendments of MiFIR by FSMA 2023, and others which have been the subject of consultations during the course of 2024. Of note is the development of consolidated tapes in the U.K., which was an action originally identified during the U.K.’s Wholesale Market Review. Please also refer to the Cross sector section above which discusses some of these changes under the U.K. Smarter Regulatory Framework heading.

The U.K. prioritised a U.K. bond consolidated tape, and accordingly the tender process was launched for the appointment of a consolidated tape provider in bonds in December 2024. The FCA has confirmed that the consolidated tape is not required to go live before bond transparency regime changes take effect on 1 December 2025. On the equities side, industry engagement on a proposed U.K. consolidated tape for equities will be starting from January 2025. In 2024, the FCA carried out some preparatory work including appointing consultants to analyse the issues around including pre-trade data in an equities consolidated tape, which was published in December 2024. The FCA has stated that it will work towards publishing a consultation paper later in 2025.

The FCA will also be continuing its work on investment research and its function in the U.K. markets throughout 2025. By way of background, in July 2023, the U.K. Investment Research Review was published with seven recommendations for improving the U.K. regime for investment research. One recommendation was the introduction of payment optionality (i.e., revisiting the “unbundling” rules that were brought in under MiFID II). Previously, U.K. regulation, which came from MiFID II, forced research to be paid for separately. However, there were various discussions in the industry around whether the “unbundling” changes achieved their aims.

The FCA has now implemented a new permissive approach intended to address the situation. The changes also seek to ensure that U.K. investment managers can access research from other jurisdictions, particularly the U.S. For 2025, it will be interesting to see the extent of any uptake of this new payment optionality and whether there is an increase in firms reverting to commission sharing arrangements which may now be possible. Also in 2025, the FCA is expected to confirm its changes for asset managers as the FCA, in Q4 2024, consulted separately on rolling out the new payment optionality for pooled funds. More broadly, the FCA is also expected to look at access to investment research for retail investors, clarify other aspects of the regime, and address wider industry concerns such as corporate access, FICC macro-economic research, trial periods, and the definition of research.

Also in 2024, the U.K. saw developments in relation to the short selling regime and the U.K. government laid updated draft Short Selling Regulations 2024. These will replace the existing U.K. regulations on short selling and move some of the directly applicable requirements to the FCA’s rulebook. The FCA is due to consult on its proposed detailed rules, which will provide further clarity on the obligations applicable under the new U.K. short selling regime, and the revised U.K. regime is expected to come into force at some point during 2025. For discussion of the key expected changes to the U.K. short selling regime as made by the draft regulations, please see our bulletin. We also discuss the new short selling designated activities above (please see commentary under the heading The Designated Activities Regime in the Cross-sector section).

Derivatives and securitisation markets

As with EU financial markets, the current headline for derivatives markets is EMIR 3, and in particular its impact on U.K. CCPs. For further discussion, please see below in the EU section under the Derivatives and securitisation markets heading.

From a U.K. perspective, there is some overlap and some differences when looking at changes in the context of U.K. EMIR. The U.K. has already dealt with some of the issues the EMIR 3 changes seek to address (such as those resulting from Brexit). The U.K. has also separately considered or is already taking forward a number of other aspects covered by EMIR (for example, the U.K. has already considered initial margin model validation and is considering whether the exemption from single-stock options and equity index options should be permanent). There are however some important differences, and it remains to be seen whether and when any similar changes may be considered under U.K. EMIR.

U.K. EMIR has been identified as part of “Tranche 3” of the U.K. Smarter Regulatory Framework reforms in respect of provisions relating to CCPs, but there has not yet been any indication of the likely timing of the review of the remainder of U.K. EMIR.

Settlement and clearing

The U.K. has, over the course of 2024, made progress towards transitioning the U.K. securities settlement cycle to T+1. The U.K. Accelerated Settlement Taskforce published recommendations for the U.K. government in March 2024, which were accepted. One recommendation was to form a technical group, which was duly established and made a further set of draft recommendations in September 2024, setting out expected tasks for completion in 2025, 2026, and 2027.

For 2025, the draft recommendations include making certain operational changes by the end of the year to ensure a smooth transition to a T+1 settlement cycle and in particular recommends that all U.K. regulated venues for equities should introduce adequate compliance mechanisms for the use of standardised dividend procedures by the end of 2025. The U.K. is expecting to make the transition before the end of 2027 (as per the recommendations made in March 2024) with further details of a transition plan published in good time to allow market participants and other parties to prepare for the move. The U.K. government is also expected to progress the legislation needed to amend the U.K. CSDR to reflect the move to T+1 settlement.

With regard to clearing, please also see the comments above, and in the EU section below under the Derivatives and securitisation markets heading in relation to EMIR 3.

Operational resilience 

Operational resilience remains a priority for the U.K.’s regulators, including in relation to financial market infrastructure. The Bank of England is now consulting on a new way for CCPs, CSDs, RPSOs and SSPs to report operational incidents and expanding the scope of existing obligations to report on material outsourcing, including a proposal that FMIs be required to maintain a register of all material third-party arrangements. The proposals would amend the rules applicable to CCPs and CSDs, and the payment systems code of practice applicable to RPSOs and SSPs, as well as introduce a new supervisory statement on operational incident reporting and amend existing supervisory statements for FMIs on outsourcing and third-party risk management. The implementation date for the proposals will be no earlier than H2 2026.

See the Prudential regulation section above for details of the PRA and FCA related proposals. These proposals echo the intended outcomes of some of the EU’s Digital Operational Resilience Act (DORA).

Market abuse

Please note the commentary in the EU section below under the Market abuse heading on international developments in relation to pre-hedging.

For discussion of the proposed market abuse regime for cryptoassets, please see our FinTech/Digital Assets section below.

EU

Primary markets

In 2025, we expect ongoing development of the initiatives under the banner of the EU Capital Markets Union work. During the course of 2024 there were a number of recommendations made in regard to driving this work forward, including statements made by the Eurogroup, ESMA, the Letta report and the Draghi report (please see comments under the Competitiveness and Growth heading in the Overview of the year ahead section above). We are expecting an update in February 2025 by the new European Commission on their planning for initiatives and proposals on the Capital Markets Union for the next legislative cycle (2024-2029).

The main primary markets focus in the EU for 2025 will be the transposition and implementation of the provisions of the EU Listing Act package. This forms a key plank of the ‘capital markets union’ plan. The package comprises an EU regulation and directive (referred to as the Listing Regulation and the Listing Directive) with a further directive on multiple vote share structures.

As of Q4 2024, ESMA has issued various consultation papers on proposals for the various Level 2 and 3 measures, with the first tranche of final reports expected in Q2 2025, followed by further final reports due in Q4 2025.

These measures represent a further attempt at establishing a successful listing regime for the EU, following the replacement of the EU Prospectus Directive (Directive 2003/71/EC) by way of the EU Prospectus Regulation (Regulation (EU) 2017/1129) legislative package, and other refreshes. The new measures aim to encourage greater listing activity in the EU and streamline the rules applicable to companies, particularly small and medium-sized enterprises, going through a listing process. The new rules will also apply to companies already listed on EU public markets. The new rules, like other iterations, aim to counterbalance two competing objectives: (i) alleviate administrative burdens, costs and liabilities on issuers and their directors; while (ii) preserving a sufficient degree of transparency, investor protection and market integrity.

The Listing Regulation (EU 2024/2809) introduces various changes to the EU Prospectus Regulation. The changes are mainly aimed at simplifying and streamlining access to the EU capital markets, without overhauling fundamental features of the EU prospectus regime.

There is some overlap with expected changes to the U.K. prospectus regime (discussed above in the U.K. section under the Primary markets heading), including on streamlining disclosure, future incorporation of financials and wider tap exemptions, although there is also some clear divergence in approach and detail.

The directive on multiple vote share structures (EU 2024/2810) will create a minimum harmonisation at EU level that removes obstacles for the access of SMEs with multiple-vote structures to SME growth markets and any other multilateral trading facility open to trading of SME shares. The directive protects the rights of shareholders with fewer votes per share by introducing safeguards on how key decisions are taken at general meetings and also helps investors to take decisions by mandating transparency measures for companies with multiple-vote share structures.

The Listing Directive (EU 2024/2811) also amends the EU requirements on how payments are made for investment research, on which key publications are expected in 2025. These include changes to the MiFID research regime and are covered under the Secondary markets heading below.

Secondary markets

Of particular significance in 2024 was the publication of texts resulting from the EU MiFID Review. The amending directive and regulation entered into force on 28 March 2024, and Member States will have until 29 September 2025, to bring into force the necessary changes. However, many provisions are not yet in force pending Level 2 legislative measures, which will be progressed during 2025. As of December 2024, ESMA has published its final reports on equity and non-equity transparency, and technical standards for commodity derivatives. Various topics discussed during the 2024 consultations have been the subject of significant industry debate, including the calibration of changes to the transparency regimes and the function of systematic internalisers (and the new Designated Publishing Entity regime).

Further to the EU MiFID Review changes, 2025 will also see a fresh attempt at launching a ‘consolidated tape’ of transaction data for bonds and for shares and Exchange-Traded Funds (ETFs), with the intention being for a provider to be selected by the end of 2025. Timing-wise, the MiFID legislation introduces a selection procedure for the bonds consolidated tape provider to be launched by 29 December 2024, with the procedure for the shares and ETFs consolidated tape provider to follow within six months (so by 29 June 2025).

The Listing Directive (discussed above under the Primary markets heading) also amends the EU requirements on how payments are made for investment research, on which some key publications are expected in 2025. As an overview, MiFID II had prevented the bundling of research and execution commissions by investment firms.

This led to greater transparency in costs and reduced execution costs but has also resulted in the EU market for research decreasing and many issuers lacking research coverage. The latest EU amendments to MiFID II, amongst other things, will introduce a high market capitalisation threshold for issuers in-scope of the unbundling of research and execution services and allow EU firms to choose whether to make joint or separate payments for third-party research and execution services. There is also an exemption for short-term trading commentary, clarification that independent research providers are exempt from the research inducements rules, and a new framework for issuer-sponsored research based on a code of conduct. These mirror, but are not identical to, reforms that have already been brought into force in the U.K. (please see our bulletin for further discussion of these).

For 2025, ESMA will be considering feedback from its consultation (which closes in January 2025) on amendments to the MiFID research regime and expects to publish a final report to submit its technical advice to the European Commission in Q2 2025. ESMA is also currently consulting on draft regulatory technical standards for the establishment of an EU code of conduct for issuer-sponsored research, which are expected to be submitted to the European Commission for endorsement by 5 December 2025.

The EU Retail Investment Strategy will continue to be a driving force for developments in EU secondary markets over the course of 2025. Please see further commentary in the Asset management and retail section below.

Derivatives and securitisation markets 

The EU derivatives markets headline for 2024 was of course EMIR 3, which entered into force on 24 December 2024 (although various provisions remain to come into force, as Level 2 measures are published). One of the key aims of EMIR 3 is to incentivise the development of clearing in the EU and reduce exposures to and usage by EU entities of third country CCPs. This has led to the introduction of the new “active account” requirement, which requires in-scope EU counterparties to maintain an account at EU CCPs and clear a representative number of trades of in-scope products through that account. The active account requirement remains the subject of an ESMA consultation which will continue into 2025.

In addition to the new active account requirement, further notable changes are introduced by EMIR 3, including exemptions relating to third country pension schemes and post-trade risk reduction services, changes to the cross border intragroup exemption, calculation of the clearing thresholds, additional requirements for clearing members and clients that provide clearing services as well as amended requirements that apply to CCPs themselves.

2025 will see further work carried out on the development of Level 2 and Level 3 measures required as a result of EMIR 3, prescribing requirements in respect of (amongst other things) the scope and nature of the active account requirements, post-trade risk reduction, information disclosure on client clearing services, information on clearing activity carried out by recognised CCPs, initial margin model validation, and penalties for breach of reporting and transparency. ESMA will also be focussing on EMIR 3 implementation via its supervision of third country and EU CCPs (see further on Settlement and clearing below).

2024 also saw a renewed focus on the securitisation market as part of the Capital Markets Union work, as part of the work to create deeper capital markets and support EU competitiveness. In 2024, the European Commission consulted on a broad range of issues in relation to the EU securitisation framework, including its effectiveness, scope, the STS standard and prudential treatment. The consultation closed on 4 December 2024. No specific timings or progress steps have been confirmed going forward, but there may be further discussion of legislative proposals regarding the EU securitisation regime during the course of 2025.

Settlement and clearing

Accelerated settlement continues to be a topic in the spotlight. On 18 November 2024, ESMA published its final report proposing shortening the settlement cycle under CSDR on 11 October 2027, moving to T+1 from the current T+2 settlement cycle. This is the same timing proposed for the U.K.’s move to T+1 (see above in the U.K. section under the Settlement and clearing heading). ESMA has made it clear that it expects the industry to initiate preparations for the move to T+1 now, and not wait for the amending measure to be published in the Official Journal. A Commission proposal for the legislative amendment to CSDR is expected in due course. The industry’s move to T+1 is not limited to the EU; as mentioned above, the U.K. intends to make a similar change (see above in the U.K. section under the Settlement and clearing heading) and many jurisdictions have already made this move (including the U.S. and Canada earlier in 2024).

Clearing in the EU has of course been significantly impacted by EMIR 3, which is discussed above. ESMA has made it clear that it will continue to focus on third country CCPs as part of its supervisory approach throughout 2025, monitoring relevant risks related to their activities in the EU as well as developments in relation to equivalence decision-making. On the EU CCP front, work will be undertaken in 2025, in particular on the EMIR 3 changes in relation to the CCP supervisory colleges.

Market abuse

The market practice of pre-hedging (where trading is undertaken to manage risk in respect of an anticipated client transaction) remains a topic to watch in 2025, with ongoing concerns around market integrity and fragmentation prompting internal work and efforts in this area. The 2023 ESMA feedback on its earlier call for evidence has, as expected, been followed in 2024 by further progress made internationally on coordinating an approach to acceptable market practices for pre-hedging activities.

In November 2024, IOSCO published its consultation report (CR/11/24) which includes recommendations addressed to IOSCO members, with a view to ensuring pre-hedging as a genuine risk management technique does not present an unacceptable market abuse risk. Amongst other things, the consultation report proposes a definition of pre-hedging (which has some differences from definitions used elsewhere in industry, for example, by the FX Global Code) and suggests circumstances where pre-hedging should be deemed acceptable.

As has happened with previous pre-hedging initiatives, it is expected that there will be a substantial amount of industry collaboration in responding to the proposals (although, of course, there is naturally a difference between the approaches of the buy-side and the sell-side). IOSCO is aiming to publish its finalised recommendations in 2025. The IOSCO consultation follows (in addition to the ESMA report mentioned above) IOSCO’s earlier survey on pre-hedging (published in Q4 2023), and the FMSB’s review of pre-hedging published in July 2024, and final recommendations are expected in 2025 (no specific timeframe has yet been given).

Also noteworthy on the topic of market abuse is the set of amendments made to MAR by the EU Listing Act package, which introduces a number of clarifications and other amendments. One particular point which has attracted industry attention includes the clarifications to the market soundings regime which provides a “safe harbour” for the proper disclosure of inside information in the context of gauging prospective investor interest (this change is one of the changes that came into force on 4 December 2024—other changes to MAR will apply from 5 June 2026).

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