The UK’s Financial Conduct Authority (FCA) has made it clear they are aware of the issues around market infrastructure such as trade repositories and Approved Reporting Mechanisms (ARMs) in the Brexit process. Similarly, trade repositories and ARMs have demonstrated acute awareness of the Brexit issue, with UnaVista applying for trade repository and ARM licensing in the Netherlands and CME looking to acquire NEX Group which has a trade repository authorisation in Sweden.
It is important to note that existing financial markets regulation will be grandfathered and remain effective until any changes are passed through the UK Parliament. 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 Regulations (MiFIR) with the FCA sending around 250 million transaction reports to other EU regulators each month.1 It’s expected that the post-Brexit transaction reporting regimes (EMIR and MiFIR) will begin their lives largely similar to the existing regimes and slowly diverge from the EU provisions as far as technicalities and practical implementation goes over time.
Last week the FCA stated “to ensure continuity of the legal and regulatory framework post-withdrawal, when EU law ceases to have effect in the UK, we have undertaken significant work around the EU Withdrawal Act. Now this Bill has received Royal Assent, existing EU legislation will be converted into UK law after March 2019, and UK laws which implement EU obligations will be preserved. The aim is that, as far as possible, to ensure continuity and certainty, the same rules and laws will apply after exit day as they did the day before.”2
As the FCA was one of the main developers and drivers of the regime in the EU, it’s not expected that in the short-term they will seek to make any large or wholesale changes to the regime as it has been developed so far.
“Neither the UK nor the EU want to see a significant misalignment in regulatory standards – nor indeed ‘a race to the bottom’ in regulatory standards. But it is likely that after our exit from the EU, our regulatory frameworks may evolve. So we need to find a way to ensure that despite such evolution, frameworks allow delivery of common outcomes… Whilst we will no longer be a member of the EU, we are committed to keeping our relationships as close as possible.”3
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.
Britain’s withdrawal from the EU will have implications for the FCA over the coming years, but for now it’s important to continue focusing on the requirements which are currently governing your business, and let the FCA and EU determine the best course for transition. 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.
If you’re still confused about what is going on, we’ve summarised it in a table below:
|EU ARM/Trade Repository||FCA ARM/Trade Repository|
|EU regulated reporting to…||No changes should be required|
to your current arrangements.
|Many ARMs and TRs are
making arrangements to obtain
EU authorisation so that they
can offer services to EU clients. Nevertheless, we are
expecting there will be transition arrangements for this
|We are expecting there will be|
transition arrangements for this
scenario which will allow you to change your reporting
requirements if needed.
The FCA will likely commence its own TR and ARM supervision
process which may include equivalence.
|No changes should be required to your current arrangements.|
Rest assured that TRAction Fintech is closely monitoring this issue and for existing clients will ensure that their reporting remains in line with requirements of their regulatory regime.
Quinn is co-CEO and founder of TRAction and focuses on assisting clients in Europe, Asia and Australia to meet their regulatory requirements with trade and transaction reporting solutions as well as development of the best execution platform. With a background in IT, Quinn started in the financial markets as IT Manager for City Index. He then co-founded and worked as a General Manager at one of Australia’s largest margin FX and CFD providers. Quinn has provided educational sessions to Australia’s regulatory bodies in relation to operational aspects of derivatives and trading platforms.