Update

European Regulation

All FOA position papers and responses to consultation papers can be accessed from the FOA web site at www.foa.co.uk/regulation/reform_uk/fsa/index.jsp. Each FOA paper includes an executive summary of key points made in the relevant response. For this reason, these papers are not reproduced in this Update.

	Proposals for Revised Investment Services Directive

Following submission of the FOA's response to the Commission's Consultation Paper on a revised ISD, FOA actions in Europe have continued to be dominated by ISD issues, particularly, the proposed inclusion of commodity derivatives within the ISD, internalisation, pre- and post-trade transparency, the definition and standards of Alternative Trading Systems and clearing and settlement issues.

As regards the proposed inclusion of commodity derivatives within the ISD, the FOA/KPMG/Clifford Chance Report and Analysis, which is available on request from the FOA, demonstrates the vital need for, and the consequence of, not getting the matrix of proportionate regulatory treatment, permissible activities and adequate exemptions right; and puts forward proposals for amending the basis of inclusion. For example, inappropriate capital rules would undermine the primary political objectives of increasing liberalisation of, and liquidity and participation in, Europe's power and gas markets; prejudice the position of small and medium sized enterprises; offset the benefits of the EU "passport" of those groups which need a passport for their cross-border business; and exacerbate trading costs with a potentially negative impact on the economics of risk management and even on consumer prices. If regulation does not go with the "grain" of commercial structures and arrangements designed to maintain competitiveness and produce business efficiencies, organisations may be required to prioritise the saving of regulatory costs over their business efficiency arrangements, materially undermining their competitors. Since publication of the report, the FOA has been active in meeting with, and putting proposals to, the European Commission (DG Markets and DG Transport and Energy), MEPs, HM Treasury, DTI, FSA, and other interested organisations as well as representatives of some of the key member states.

The issue of internalisation is high on the FOA agenda and it is an active supporter of continued joint trade association work and papers designed to (a) secure acceptance of internalisation of securities trading as an acceptable alternative methodology for executing customer orders; (b) publicise the adequacy of CESR rules (and avoid any distinctive or separate regulatory treatment); and (c) illustrate the comparative immateriality of pre-trade transparency requirements and the importance of a proportionate and tailored approach to post-trade transparency.

	Cross-Border Business in non-ISD Products with Italian Counter Parties

As Members will be aware, the FOA has been pursuing this issue with CONSOB and has recently circulated a letter from CONSOB setting out the basis upon which cross-border non-ISD business may now be done in Italy. The FOA is currently seeking clarification on a number of points in the letter, and hopes to be in a position to send out further clarification to firms within three or four weeks.

	Commission Consultation on Clearing and Settlement

The FOA has responded to the broad policy issues set out in the Commission's Consultation Paper and that response can now be seen on the FOA's web site. The Commission's approach is founded largely on the precept that the role of regulation is to facilitate evolution of the infrastructure - but not to dictate the outcome of that evolution (a view which is not shared by, for example, the London Stock Exchange).

The FOA is currently consulting with member firms with a view to submitting a more technical paper by the end of September. Anyone interested in participating in that exercise should contact Hugo Jenkins.