Alongside the Treasury, the regulator is considering reforms to capital markets looking at changes to the UK’s regulatory regime to ensure this is adapted to the structures of UK markets and maintaining the highest regulatory standards.

The consultation paper launched yesterday is the first output of that work and covers changes to two areas to the conduct and organisational rules in UK MiFID: research and best execution reporting.

The MiFID is the collection of laws regulating the buying, selling and organised trading of financial instruments. The FCA said it sees the fundamental requirements in MiFID as continuing to provide important protections. However, it claimed there are areas where markets have evolved, or objectives are not being met as efficiently as possible.

The proposals in the consultation are an initial set of changes within the wider context of the capital markets reform work. The FCA is proposing changes to the conduct and organisational requirements in UK MiFID for two areas: research and best execution.

The regulator said it has spoken to a range of market participants about what it can do to ensure the rules achieve their objectives and reduce compliance costs, without compromising high standards of investor protection.

David Croker, PwC partner, said: “The FCA has launched its review of the UK’s MiFID II framework. Working alongside HM Treasury, the FCA is considering reforms to capital markets, focusing on maintaining the highest regulatory standards in a changing market.

“There is rightly a focus on key aspects of the investor protection framework and we welcome the changes - as will the industry, particularly the permanent removal of best execution reporting - which has been widely seen as overly costly for firms but with little benefit to end-investors.”

He added: “But the proposals are also another example of UK and EU divergence. The FCA has gone further to address the compliance burden on best execution, while setting a lower exemption threshold for SME research. The difference in approach may create additional operational and compliance challenges for firms with a presence in both the UK and EU.

“The ability to re-bundle certain SME and FICC research should result in enhanced buy-side access to important information on those asset classes, but is unlikely to prompt a fundamental reverse to the downsizing of sell-side research functions that followed the original MiFID II unbundling reforms.

“This marks the start of wider work by HM Treasury and the FCA to reform capital markets regulation in a post-Brexit world. We expect to see changes to costs and charges disclosure for wholesale clients and the transparency regime, among other areas, shortly.”

The consultation will run until June 23.