FX Regulatory changes in 2023

The UK Temporary Permission Regime and its Impact on FXall                    

Episode 3

In this episode, we focus on the UK temporary permission regime and its Impact on FXall. What is the UK's temporary permission regime and why is that important? How are FXall customers impacted, and what are the timeline considerations for customers to reach through this transition?

Host: Mike Cahill, Head of Video & Podcast Content Production for Sales Enablement, LSEG
Guest: Chris Leonard Appleton, Head of FX Risk & Regulation, LSEG

Listen to the Podcast

  • Mike: Welcome to our special, a Limited series that's looking at FX rules changes in 2023. I'm

    Mike: Mike Cahill, head of video and podcast content production for sales enablement at the London Stock Exchange Group. In this episode, we're focused on the UK temporary permission regime and its Impact on FXAll. Our guest is Chris Leonard Appleton, head of FX Risk and Regulation at LSEG.

    Mike: So Chris, we're now into our third episode and we're focusing on this episode on the UK temporary permission regime and the Impact to FXAll. So I guess I have to start right at the beginning. What is the UK's temporary permission regime and why is that important?

    Chris: Well, so the temporary permission regime was a regime that the UK implemented effectively to replicate passporting rights for European clients coming into the UK after Brexit. So obviously while the UK was a member of the EU, European financial firms could passport services into the UK that stopped after Brexit. The TPR just replicated those passporting rights. So from a statutory perspective, the TPR ran for three years after Brexit.

    Chris: So of course from first of January 2024, that that legislative arrangement expires. And what it means is that all of those European firms who are using the TPR today will need to move to a permanent authorization in the UK by 2024 or cease doing business in the UK. So it's is a big deal for European firms who have UK clients.

    Mike: So how does that directly affect FXALL clients, you know, the people who work with our products.

    Chris: Yes, I think I probably need to answer how it affects FXAll because then that sort of explains how it affects our clients. So FXAll today is authorized as an MTF in Ireland and we use the TPR to allow UK customers to use FXAll,  so from the beginning of next year we will be implementing a new UK MTF for FXAll which we're in the process of doing the technology build for now.

    Chris: The net result of that is that by the end of this year we will need to migrate all UK domiciled clients using FXAll to that new MTF in London. So we're putting in a big program of work to enable that. There's quite a lot of work and we will need our clients to do. But yeah, there's definitely going to be a little bit of upheaval for our UK clients and obviously their banks to ensure that they can continue to trade on FXAll come January 2024.

    Mike: Are there a series of milestones that you need to reach with customers throughout 2023 to help them make this transition?

    Chris: Yeah, absolutely. So I think, first of all, our number one priority is to ensure a seamless migration and to ensure that come 1st January 2024, clients have continuity of service. So there's a number of technology builds  that we need to implement to enable the UK MTF. The most major one is we will be releasing and packaging a new GUI.

    Chris: The reason for that is today when one of our clients uses FXAll  there was a dropdown in the GUI that designates what liquidity venue the trading on UK MTF will need to appear in that dropdown when we implement this for UK customers whose only option will be UK MTF from first January, they will have to take that GUI upgrade, otherwise they won't be able to trade come the first.

    Chris: It will be as simple as that. So we're communicating in due course when that will be available, where the other milestones are really server upgrades and updates to interfaces. So we'll be communicating in due course when that when that will be occurring. But obviously where we're aiming to be code complete as quickly as possible in Q1 or early Q2.

    Chris: So we then give our clients enough time to migrate in a in an orderly manner.

    Mike: Yeah, I was going to ask you, so there's probably a lot of communication going on even at this early stage between LSEG and customers right?

    Chris: Absolutely. So we communicated at the beginning of the year our intention to establish a new MTF in the UK. We will be communicating in the next couple of weeks with far more detail on what that means. I think our idea is to over communicate these items, so we will be communicating quite regularly to our clients during the year to remind them that we need them to take action.

    Mike: Are you getting a sense at all, I mean, even at this early stage, that there is some anxiety on the customer level for these changes that are coming up?

    Chris: Certainly on the bank side, there's a lot of focus on it already, which is very promising. I know the banks have already been asking to see copies of the rulebook for the new MTF. Well, the contractual arrangements will be what the remittance details will be, things like that. So we're seeing very good early engagement and we will be working hard to ensure that that continues over the year.

    Mike: And then I'm sure there's a testing regime as well that you'll be going through towards in the second half of 2023.

    Chris: There are so there's a number of actions that would be asking clients to take. I mean, the GUI upgrade would be the critical one. That's very firmly on our critical path at the moment because the number of clients who use the GUI, we will be asking clients to test both the taker side and the make side API interfaces that they have with FXAll.

    Chris: So and obviously will communicate when integration environments are available for that. There's a number of other actions that we're going to be asking clients to do as well. So for example, all UK individuals who use the MTF at the moment because of the digital reporting nature that we're going to need to undertake to both the FCA and the Central Bank of Ireland from the 1st of January, we need to get updated.

    Chris: What we call PII data of personal identifiable information from our clients. So we will be communicating very shortly, asking our UK based traders and users to update that information in all in our portal as quickly as possible. This is obviously a new MTF, right? I mean, we operate an MTF in Ireland in the UK previously, but that was effectively mothballed when we transferred it to Ireland, which means we need to go through a new round of onboarding, notably because we need to capture new information and we need to undertake KYC on the clients that are moving over to our investment firm in London.

    Chris: So we will be asking those clients who are affected to complete new forms working, making those available as soon as possible. I think just anything that requires paperwork to be completed, rulebooks to be assessed, contracts to be assessed, anything like that, we know that that takes time for our clients. So we do ask them to engage us as early as possible when we're ready, which will be shortly.

    Chris: And then the only other thing which obviously our banks are going to be doing, there will be we've sort of talked about this a lot on previous episodes, but fragmentation, I mean, this is the clear case of fragmentation because we're splitting an MTF into two some of our UK banks who will need to move over to the UK in Tier four just to ensure that they can continue trading with their EU clients on our EU MTF after the first.

    Chris: So it's not just the UK split, there's obviously an EU split that our UK banking community needs to think about as well and will be engaging with the banks that we think are affected as soon as possible. We would urge all of our banking community to really do an assessment quite quickly on whether they're affected by this.

    Mike: Just a final question for this episode. This just sounds like a pretty big lift, both from the LSEG side and from the customer side.

    Chris: Well, as I say, we will do everything we can to make this a seamless as possible for our clients. But yeah, there are a number of actions we need to take where we've done this quite a lot now over the last few years. I think in terms of migrating customers, setting up the technical infrastructure and all that sort of stuff, I hope lessons have been learned from former years and we do it in a pretty seamless way.

    Chris: But yes, I'd be lying if I said there's zero effort on the part of our customers with this.

    Mike: Very good. Chris thanks again for your time. Much appreciate it.

    Chris: Thanks, Mike.

    Mike: Our guest has been Chris Leonard Appleton, Head of FX Risk and Regulation at the London Stock Exchange Group. I'm Mike Cahill, and thank you all for listening.

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