Rules and legislation currently governing the operating of the financial markets in the UK are set by the EU and are applicable to all EU members. As the UK begins its transition out of the EU, all eyes will be on the Financial Conduct Authority (FCA) and British Government elected tomorrow as they modify existing rules and develop new rules and legislation concerning the financial markets.
In the FCA’s 2017/18 Business Plan, the Regulator stated that they will work in conjunction with the British Government to ensure that financial markets experience minimal disruption during the Brexit process. This will include ensuring that any new legislation aligns with global standards.
John Griffith-Jones, Chairman of the FCA, stated that the FCA is of “the mindset of doing whatever is needed to fulfil the duties required of us and are making our considerable technical knowledge available to the Government” to ensure the smooth transition of the UK financial markets out of the EU.
Existing financial markets regulation will be grandfathered and remain effective until any changes are passed through the UK Parliament. It’s expected that the post-Brexit OTC trade reporting regime will begin its life largely similar to the existing regime and slowly diverge from the EU provisions as far as technicalities and practical implementation goes over time. As the FCA was one of the main developers and drivers of the regime in the EU, it’s not expected that they will seek to make any large or wholesale changes to the regime as it has been developed so far.
OTC Derivatives firms can assume that funds will be applied to the development of Britain’s own trade reporting regime. Currently, the trade reporting regime is prescribed by the European Securities and Markets Authority (ESMA) through the European Market Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Directive (MiFID) (with the second wave of MiFID regulations to be implemented under MiFID II). However, as the requirements of MiFID II are set to come into effect prior to Britain leaving the EU, brokers will be required to meet the trade reporting requirements. The implementation of the British trade reporting regime would also require the FCA to assess and licence trade repositories to accommodate the new British regulations.
The FCA announced recently it has put GBP 2.5m aside to deal with the smooth transition of Brexit. The funds will essentially cover the costs of the FCA’s withdrawal from the EU and the development of new rules and legislation applicable to the financial markets. As Britain is currently covered by the rules and legislation of the EU, the FCA will need to allocate funds into the development and incorporation of new rules and legislation to regulate the financial markets domestically.
Britain’s withdrawal from the EU will have implications for the FCA over the coming years, but for now it’s important to adopt the mantra of “keep calm and carry on”. The smooth transition of the FCA out of EU regulation will likely be an ongoing focus area for the regulator throughout the transition and is not expected to result in any apocalypse events. The FCA has already dedicated a significant amount of funds to the development and incorporation of domestic rules and legislation.