By Santiago Perez, Compliance Consulting Analyst
On 4 July 2025, the UK’s Financial Conduct Authority (FCA) published Consultation Paper CP25/20, presenting significant potential benefits for impacted firms. If adopted, the proposed changes could lower costs and reduce compliance burdens for firms while fostering a more dynamic UK market environment.
Through this consultation, the FCA is proposing to:
- Give trading venues more flexibility by allowing broader use of reference prices and matched principal trading, removing unnecessary cost and constraints
- Reduce compliance burdens by scrapping the systematic internaliser (SI) regime for non-equity instruments
- Encourage efficiency and competition, aiming for a market structure that better supports liquidity and price formation
This consultation paper notably follows Policy Statement PS24/14, which recently removed pre-trade transparency requirements for SIs in bonds and derivatives markets, negating the need for firms to identify themselves as SIs in non-equity instruments.
Aligned with the FCA’s 2025-2030 strategy to be a smarter regulator and support sustainable growth, the reforms outlined in CP25/20 aim to reduce complexity, bolster market integrity and attract global capital.
In this article, we provide a detailed overview of the key proposals and discussion points raised by CP25/20.
Addressing the changes in the UK’s wholesale markets regime
In its 2023 Wholesale Markets Review (WMR), the FCA concluded that the 2018 MiFID II / MiFIR transparency regime for bonds and derivatives had not delivered meaningful pricing improvements. To address this, PS24/14, effective from December 2025, recalibrates non-equity transparency requirements, replaces rigid quantitative SI thresholds with a qualitative definition, and streamlines pre- and post-trade reporting.
Key proposals
CP25/20 builds on PS24/14 and two core WMR commitments by proposing to:
- Remove the prohibition on matched principal trading by firms operating a multilateral trading facility (MTF), which the FCA states is an unnecessary and costly constraint
- Permit trading venues operating under the reference price waiver to use a broader set of prices than just the primary market, or the most relevant market in terms of liquidity, to cross orders under their systems; this would also include allowing the use of the reference price waiver within the same system where the price is derived from
- Remove the prohibition on investment firms that are SIs from operating an organised trading facility (OTF)
- Remove the SI regime for bonds and derivatives, as well as structured finance products and emissions allowances
Together, these reforms aim to simplify the SI regime, lower costs for firms and foster more efficient, competitive UK wholesale markets.
Discussion on reforms to equity transparency
In CP25/20, the FCA has reviewed the evolving structure and transparency of the UK equity market, seeking stakeholder feedback on current market operations and potential reforms ahead of a more detailed consultation scheduled for 2026.
The FCA highlights significant changes in UK equity trading dynamics over the past two decades, influenced by technological innovation, market structure evolution and regulatory developments. One key observation is the increased dispersion of secondary market trading activity across diverse execution venues, with a decline in the proportion of trading conducted on central limit order books (CLOBs) operated by exchanges.
While this fragmentation has fostered greater competition, resulting in lower latency, enhanced resiliency, reduced trading costs and broader investor choice, it has also reshaped liquidity distribution. Fragmentation has existed since the introduction of MiFID, but the nature of that fragmentation is shifting, with an increasing role for negotiated bilateral trading – as evidenced by the market trend shift from January 2018 to April 2025, where CLOB trading fell by 19%, while bilateral trading rose by 10%.
This trend raises concerns about the transparency of execution services. CLOBs have historically served as foundations for transparent price formation. The FCA questions whether the existing pre- and post-trade transparency framework sufficiently supports a comprehensive view of market liquidity and efficient price formation considering these market shifts.
The paper also explores the equity SI regime, raising several critical points:
- Scope of instruments: Which classes of instrument should be included within the equity SI regime?
- Trade reporting transparency: Are trade reports adequately indicating SI exposure to market risk?
- Quote quality metrics: What indicators best measure the usefulness of SI quotes for price formation or liquidity assessment?
- Price improvement conditions: Should existing conditions for offering price improvement be revised?
- Quote sizes: Is the current method for calculating the minimum quote size appropriate considering protecting liquidity and supporting meaningful price formation?
- Call for further evidence: The FCA invites further input from market participants on these issues.
Implementation timeline
The feedback deadline for this consultation paper was 10 September 2025 with the policy statement set to be released in Q4 2025 in line with the full implementation date of PS24/14 on 1 December 2025.
There is no current set date for the regulator’s future consultation on reforms to equity transparency, but this is planned for 2026.
How we can help
To discuss what the FCA’s proposed trading venue and SI regime changes may mean for your firm, or to develop an implementation plan and find out more about the support available from IQ-EQ’s expert UK compliance consulting team, please contact us today.
