Financial Services Round Up

Purpose

1. This article rounds up some of the key recent developments in UK financial services that may be of interest to clients.

Consolidated Tape

2. As part of its MIFIR review consultation package, ESMA has published a consultation paper proposing draft technical standards on the following areas: (a) input and output data of consolidated tape providers (CTPs), (b) the equities CTP revenue distribution scheme, (c) the synchronisation of business clocks, (d) authorisation and organisational requirements for data reporting services providers (DRSPs), and (e) proposed CTP tender criteria and their scoring. There are parts of the consultation paper which will be of interest to firms other than DRSPs: the requirements regarding clock synchronisation will apply to designated publishing entities and systematic internalisers, and the proposed technical standards on input / output data for the CTP will be relevant for all firms contributing input data to CTPs, including trading venues. The consultation is open until 28 August 2024, and the final RTS / ITS should be submitted to the Commission by 29 December 2024.

Citigroup fined for fat-finger trades

3. Citigroup has been fined by both the PRA and the FCA for systems and controls related to a fat-finger trading error. The PRA fine was nearly £34m and the FCA fine was nearly £28m. The incident arose when a trader made an error loading a basket of equities into an order management system. Intending to sell $58m, he instead loaded a basket with a notional size of US$444bn comprising 349 stocks, across multiple European markets. Citigroup’s automated systems caught most of the trades, but not all, and the manual checks failed to detect those that got through. As a result, $1.4bn of trades were placed erroneously, causing a flash-crash in European equities before the trader noticed the mistake and withdrew the trade ten minutes later. The case teaches some important lessons about trading interface design, algo calibration and real-time monitoring. It is also interesting to note that this case progressed much more swiftly than many of recent times: the incident occurred in May 2022, and the PRA and FCA notices were published in May 2024. Two years from incident to fine is an improvement from the 8 or so years seen in other cases such as ADM and ED&F.

FCA Primary Markets Bulletin

4. The FCA published the 49th edition of its primary market bulletin (PMB) in May 2024.  The bulletin is aimed at premium listed companies and their advisors. The newsletter gives feedback on several different thematic reviews of premium listed companies, including (a) compliance with Listing Rules obligations regarding long term incentive plans, (b) global depository receipts, and (c) annual financial reports. In relation to each:

a. The review found high levels of compliance with the Listing Rule requirements for LTIPs, including the requirement to seek shareholder approval and disclosing the full text or a description of the principal terms in the shareholder circular;

b. The FCA found some issues with uploading of annual reports, corporate governance statements, general public disclosure of inside information and PDMR notifications; and

c. The FCA noted some failures to file annual reports in the National Storage Mechanism and/or the RNS, and in structured digital reporting. It also warned companies that it would suspend their listing if they fail to publish their annual reports within the deadline of four months from year-end.

5. The FCA also explained certain changes being proposed to ethnicity reporting categories for listed companies, and the planned move from the Transition Plan Taskforce (TPT) Disclosure Framework to the International Sustainability Standards Board (ISSB) Standards. The FCA recommends listed companies start familiarising themselves with the ISSB Standards.

DORA

6. Just a reminder about the DORA timeline. DORA takes effect from 17 January 2025. The second batch of policy mandates (final reports) are due to be published on 17 July 2024. The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) are running a voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities. The registers of information will be submitted between 1 July and 30 August.

About Cambitas

7. Cambitas offers legal and consultancy services in the areas of financial markets regulation, enforcement and ESG.

8. For more information, see www.cambitas.com.

9. If you’d like to discuss any of the above, or need assistance on any of the areas we cover, please contact tom.hine@cambitas.com.