The Securities Financing Regulations is an important body of legislation for the regulation of repo and securities lending. It was introduced in the EU Official journal on 3 December 2020. It contains rules governing the underwriting and trading of financial instruments, including securities, commercial mortgages and cross-currency swap agreements.
The FSA is responsible for ensuring that UK financial markets remain regulated and safe by ensuring compliance with the law in relation to financial institutions, brokers and their products. The FSA also monitors developments in the international market.
There are three different categories of financial products that fall under the jurisdiction of the FSA; it includes financial products such as loans, bonds and debentures, as well as other financial products such as insurance, equity, stocks, trusts and derivatives, such as swaps and forwards. In addition, there are different classes of trading in securities; these are known as financial products trading.
A registered dealer is one who is licensed and authorised to trade under the securities financing regulations of the United Kingdom, and must comply with the relevant regulations. A broker is one who trades on behalf of clients.
The Securities Financing Act 2020, as part of the UK Government’s effort to reform financial markets, was introduced as part of the Financial Services and Markets Act 2020. This legislation has made many changes to the underwriting, trading and documentation required to be provided by brokers and registered dealers.
In order to operate as a registered dealer and broker in the United Kingdom, it must obtain permission from the FSA. It can also be held liable in civil and criminal courts for providing false information or failing to provide accurate information to clients.
This Act also establishes a body called the Financial Services Authority (FSA) which is the regulatory authority in relation to the registration of broker and dealer under securities and the underwriting and trading of financial products. This body regulates the underwriting and trading of financial products, including securities, commercial mortgages, cross-currency swap agreements and debentures.
A qualified person must be a member of the FSA in order to trade in securities financing. This person will have the responsibility of checking the qualifications and competency of a broker and dealer, as well as ensuring that a trader adheres to the FSA’s Code of Practice.
The FSA also regulates the underwriting and trading of derivatives, including the provision of advice and guidance to traders and the monitoring of the quality of these. As part of the FSA’s efforts to reduce the risk associated with derivatives, it is now mandating that all traders and brokers obtain FSA approval before engaging in any derivative transactions. The FSA has adopted an innovative risk management approach in relation to derivatives. This risk management system includes a number of mechanisms, such as risk control measures, controls on pricing and capital requirements.