FCA warns that Euro laws may curtail commodities

In an eight-page document, Regulating the Commodity Markets: a Guide to the Role of the FCA, the City watchdog claimed that the European Markets Infrastructure Regulation (EMIR), MiFID II, the Market Abuse Regulation (MAR) and new benchmarks from the European Commission could create a stricter environment for trading and investing in commodities.

It said that while EMIR may have little impact on investors, save to increase transparency to regulators through reporting to trade repositories, the other legislation could increase regulatory control over transactions.

MiFID, and the accompanying MiFIR regulation, will require better transaction reporting across regulated markets and may bring more firms under its scope.

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The MAR will “significantly advance the scope of the current market abuse regime”. It will cover manipulative behaviour in physical commodity markets, and aim to capture attempted market abuse and manipulation that affects benchmarks.

The FCA said: “The changes will increase the regulatory grip over conduct on commodities and are intertwined with the changes under MiFID and EMIR that increase the visibility to regulators of market activity”.

When it comes to benchmarks, the European Commission is keen to make sure there are clear benchmarks in place so that investors in commodity markets are given better clarity over price.

An analyst note from London-based Bestinvest, said: “Commodity funds are not widely held by retail investors. We do allocate to them in some portfolios, for diversification purposes and not based on a trading view of zinc or gold.

“We do that generally through diversified Ucits funds. For physical exposure there is plenty of choice in the exchange-traded fund space.

Philip Hanley, director of Oxfordshire-based Philip James Financial Services, said: “What goes up must come down. Boring old adage, but stands one in good stead as a financial adviser. Gold is a big example of this.”