It’s no secret that our world is changing drastically. Years before the COVID pandemic hit, the financial services industry in the European Union (EU) recognized the need for reform, specifically regarding the post-trade sector.
In the last decade, the European Securities and Markets Authority (ESMA) has proposed and mandated new trade reporting requirements—namely EMIR, SFTR, and MiFID—in an effort to increase transparency in the post-trade market to reduce consumer and investor harm. Beginning in 2017, the financial services industry began to see these new reporting requirements take shape and go into force.
Not only are banks, firms, institutions, and trade repositories trying to adopt new processes, systems, and resources to be in compliance with the new trade reporting requirements, there are a sea of other changes that are also hitting the market.
The UK has announced its departure from the EU to go into effect at the beginning of January 2020. Although this sparked a number of other changes in the financial services market, the onset of COVID forced the market to take yet another different turn.
Despite these vast changes, Point Nine remains in the UK even after Brexit. In this article, we will provide a summary of Parliament’s responses related to the outcome of Brexit, amendments to legislation, and COVID.
What is Brexit?
As of January 31st, 2020, the UK is no longer a member of the European Union. The EU’s exit was known as “Brexit”, and has been on the table for discussion since June 2016. In fact, 17.4 million people opted for Brexit. Although this isn’t may not be recent news, the UK’s relationships are still a trending topic of conversation today and will be for the foreseeable future.
The UK’s department from the EU means that the UK has regained control of the rules governing the financial services sector. Even amidst this transition, the UK continues to be committed to the highest international standards of financial regulation.
The Role of the Financial Services Sector
The financial services sector plays a crucial role in supporting the larger economy by providing the following:
- The creation of jobs across the UK
- Supporting SMEs
- Contributing taxes
- Driving regional growth and investment
- Tackling climate change
- Embracing technology and innovation
The UK’s financial services sector has also been at the forefront of Parliament’s response to the economic impact of COVID-19. In fact, the UK has extended more than £35 bn of credit to provide fundamental support to businesses as well as consumers by offering lenience on mortgages and other consumer credit products.
Additionally, the staff has been dedicated to keeping the bank branches open to the public as often as possible throughout the pandemic to ensure communities can access financial services during a time of need.
Furthermore, the UK is keenly aware of its crucial position in the market as a major financial hub. Future legislation will be guided to support economic prosperity across the country, to ensure financial stability, market integrity, and consumer protection.
The UK is also committed to remaining true to its key characteristics of openness, transparency, safety, innovation, and resiliency in financial markets. Therefore, maintaining a long-term relationship with the EU would help complement the UK’s leading global role in financial services.
Adapting to Brexit
The Brexit transitional period was set for 2020 January until 31 December 2020. There are currently a number of important regulatory reforms that are in the implementation process. As a result, the UK’s regulatory framework will need to adapt according to future plans and legislation, particularly regarding the role of the UK outside of the EU.
The next phase of Brexit will address how financial services policies and regulations will be mandated in the UK. This includes how Parliament, the Treasury, financial services regulators, and stakeholders will be involved in the process.
The Financial Services Bill
The government plans to implement a Financial Services Bill in order to continue to deliver a number of existing government commitments as well as ensure that the UK maintains its world-leading regulatory standards and remains open to international markets.
Furthermore, the Financial Services Bill will update regulations for credit institutions, implement the New Investment Firms Prudential Regime (IFPR), and also implement the international Basel III standards. These initiatives are all signed with the EU’s Investment Firms Regulation and Directive.
Maintaining Sound Capital Markets and Minimising Uncertainty and Risks
Under the terms of the Withdrawal Agreement, the Government will implement EU legislation that is scheduled to go into force at the end of the transition period in December 2020. The EU is in the process of implementing various provisions on capital markets, some of which will apply prior to the end of the transition period, all while adhering to high regulatory standards.
Additionally, the government is committed to enforcing regulations that support and enhance the function and operations of UK capital markets and ensuring that market transactions settle in a timely manner while also sustaining market liquidity and efficiency.
As a result, the UK will not be implementing the EU’s new settlement discipline regime, which was scheduled to go into effect in February 2021. Therefore, UK firms are encouraged to continue to adhere to and apply the existing industry-led framework. The UK will also not be further incorporating any reporting requirements or obligations under SFTR for non-financial counterparties, which is due to go into effect in January 2021.
Finally, the HM Treasury plans to provide further details on the following upcoming legislations:
Benchmarks Regulation Amendments to ensure continued access to third-country benchmarks until the end of 2025. The HM Treasury is scheduled to publish a policy statement on this amendment in July 2020.
Market Abuse Regulation Amendments to confirm and clarify that both issuers and those acting on their behalf maintain their own insider lists and change the timeline for disclosing certain transactions.
Address Potential Risks of Consumer Harm in response to industry and regulator feedback. The HM Treasury is scheduled to publish a policy statement on this amendment in July 2020.
European Market Infrastructure Regulation (REFIT) to complete implementation, to improve trade repository data, and to ensure that smaller firms can access clearing on fair and reasonable terms.
Benchmarks Regulation and EU Exit Regulations 2018 to that FCA powers are sufficient to manage a smooth transition from LIBOR.
In summary, market participants can expect to see some additional details and updates coming in July 2020, and as the Brexit transition period progresses through the end of 2020.