Commodity Standing Group (COMSG)

IRegulatory background Current lighter touch regime for UK commodity firms not undertaking ISD Investment Business MiFID to replace ISD and extend definition of Financial Instruments to include commodity derivatives Some previously exempt firms captured  full capital and COB requirements required by CRD and MiFID

IRegulatory background MiFID commodity exemptions (1)“Provided this is an ancillary activity to their main business, when considered on a group basis” (2) “For persons whose main business consists of dealing on own account in commodities” However, European Commission review of exemptions in 2007 at which time they may be removed

IRegulatory background MiFID timeline Level 2 text prepared on the definition of commodity and commodity derivatives Frequent European Securities Committee (ESC) meetings on MiFID - last expected on 27/28 September Then Commission to propose text to ESC and Parliament ESC vote probable in mid-December Likely implementation date of 30 April 2007 FSA plans to publish CP in November Prior FSA pre-consultation  COMSG

IRegulatory background CRD timeline Committee on Economic and Monetary Affairs (ECON) vote on 13 July 2005 Currently: Council attaches meetings to assess Council view on Radwan Report Frequent “Troikas” (Commission/Presidency/European Parliament) to negotiate common ground between Council/EP EP Plenary vote w/c 26 September Aim is for agreement on Directive in single parliamentary reading

IRegulatory background Impact Firms caught by MiFID and not subject to exemptions CRD applies in full Focus on CRD implementation – limited flexibility and discretion (2)Non-MiFID firms falling within FSA’s perimeter Greater discretion and flexibility in policy development

IIRole of COMSG Pre-consultation forum to: Foster discussion between FSA and commodity industry Provide FSA with information on state of the market Provide industry with information on regulatory process and proposals Clarify current policy treatments and how they would be applied to commodity firms To provide industry with an opportunity to input into the policy making process Collaborate with firms to address issues of policy implementation and the monitoring of compliance with policy

IIRole of COMSG: MiFID firms To identify main impacts of implementing MiFID and CRD on industry, e.g. –Practical implementation issues –Monitoring of compliance To consider policy issues arising from MiFID and CRD Identify areas where further commodity specific guidance may need to be issued to implement MiFID/CRD COMSG will discuss but cannot determine MiFID exemptions policy (HMT jurisdiction)

IIRole of COMSG: non-MiFID firms FSA/COMSG to consider domestic policy issues not covered by MiFID or CRD For example the continuation of a light touch regime for those non-MiFID firms falling within FSA’s perimeter

IIRole of COMSG: industry’s input FSA needs industry help to: Identify the main impact of, and issues for, commodity firms implementing MiFID and CRD Develop the COMSG agenda providing views on the appropriateness, and practicality, of the FSA’s proposed solutions to policy issues Offer alternative solutions to policy issues where proposals are considered inappropriate Review and provide suggestions for improvements to its Handbook Assist in assessing the overall cost and benefits for UK firms of implementing proposals

IIRole of COMSG: future developments To consider potential future review of the commodity regime by the Commission Identify the substantive issues that need to be raised in other international fora

IIRole of COMSG - first meeting MiFID and CRD update Discussion of industry concerns including: –Whether FSA's authorisation process could deal with mature as opposed to new businesses –Displacement of financial firms from the UK –The potential of a handbook tailored to commodity firms –Concentration rules in respect of RCHs & REs Minutes and terms of reference available on FSA website g/index.shtml

IIRole of COMSG - forward agenda Discussion of the approval process for use of internal models: (1) Market risk models (2) Credit and operational risk models Scope of consolidation issues COB issues Non-MiFID regime Other issues raised by industry

IIRole of COMSG – regulatory timetable MiFID firms MiFID CP in November month consultation period MiFID implemented 30 April 2007 CRD CP in February 2006 setting out the draft Handbook text implementing CRD 2-3 month period consultation period CRD implemented 1 January 2007 Non-MiFID firms Likely to intensify consultation early 2006