Brexit and financial regulation – update on the UK’s post-Brexit approach

24 June 2020

In a written statement yesterday, UK Chancellor of the Exchequer, Rishi Sunak, set out an update on the UK’s post-Brexit approach to financial services.

In relation to capital markets (and especially derivatives and trading), the statement notes several significant developments.

  1. Central Securities Depositories Regulation (CSDR) – the Government will be considering the future approach to the UK’s settlement discipline framework. As part of this, the UK will not be implementing the EU’s settlement discipline regime, set out in CSDR, which is due to apply in February 2021. UK firms should instead continue to apply the existing industry-led framework. The Financial Conduct Authority (FCA) has updated its CSDR webpage to reflect this change.
  2. Securities Financing Transactions Regulation (SFTR) – the UK will not be taking action to incorporate into UK law the reporting obligation under SFTR for non-financial counterparties (NFCs), which is due to apply in the EU from 11 January 2021. As such, so-called “phase 4” of the SFTR reporting obligation will not be brought into the UK. Instead, the intention is that systemically important NFC trading activity will be captured through other reporting obligations that are due to apply to financial counterparties. The FCA has updated its SFTR webpage to reflect this change.
  3. Further legislation – HM Treasury plans to set out further detail on upcoming legislation in due course, which will include:
    1. amendments to the Benchmarks Regulation to ensure continued market access to third country benchmarks until end-2025. HM Treasury intends to publish a policy statement in July 2020;
    2. amendments to the Market Abuse Regulation to confirm and clarify that both issuers and those acting on their behalf must maintain their own insider lists and to change the timeline issuers have to comply with when disclosing certain transaction undertaken by their senior managers;
    3. legislation to improve the functioning of the PRIIPs regime in the UK and address potential risks of consumer harm in response to industry and regulator feedback. HM Treasury intends to publish a policy statement in July 2020; and
    4. legislation to complete the implementation of the European Market Infrastructure Regulation (REFIT) to improve trade repository data and ensure that smaller firms are able to access clearing on fair and reasonable terms.

HM Treasury has also published a written ministerial statement relating to the LIBOR transition. The statement sets out detail on the Government’s approach to legislative steps that could help deal with “tough legacy” contracts that cannot transition from LIBOR before the end of 2021. In particular the Government will use the Financial Services Bill to introduce amendments to the Benchmarks Regulation 2016/1011 as amended by the Benchmarks (Amendment) (EU Exit) Regulations 2018, to ensure that the powers of the FCA are sufficient to manage an orderly transition from LIBOR.

The Chancellor appeared positive about the ongoing relevance of EU standards in the UK: “The Government continues to believe that comprehensive mutual findings of equivalence between the UK and the EU are in the best interests of both parties and we remain open and committed to continuing dialogue with the EU about their intentions in this respect.”

The reality of Brexit, however, is that some EU standards will no longer form part of UK regulatory landscape.