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Financial Services Regulation post-Brexit
28 June 2016
In the wake of Thursday’s referendum result those within Financial Services Regulation are left wondering what can be expected post-Brexit?
UK Financial Services Regulation post-Brexit
The UK’s decision to leave the European Union will certainly have a considerable effect on financial services firms, with Brexit creating significant turbulence both now and on the road ahead.
In the UK, much of our existing regulation for financial services firms derives from EU legislation, thus the decision to leave the EU will most certainly have a substantial impact upon the industry.
With the result announced in the early morning on Friday and with the UK’s decision still sinking in for many, the Financial Conduct Authority issued a statement reminding the Financial Services that “Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect”.
As such, those within the Financial Services must continue to remain compliant with all existing regulatory requirements as imposed by the UK Regulators and the larger EU – and that this will continue indefinitely until the Government informs of a change of applicable regulation.
This includes preparing and implementing new EU regulation that is scheduled such as the new Market Abuse Regulation to be implemented next week on 3rd July 2016 and also the revised Markets in Financial Instruments Directive (MiFID II), now timetabled for 3rd January 2018.
It is far too early to know the full scale of the impact upon Financial Services Regulation post-Brexit, and much will be dependent upon the Government’s negotiations for the UK’s exit from the EU.
Thus Thursday’s result sees no immediate regulatory relief and Compliance teams must continue with business as usual.
It is clear that firms must continue to push ahead with upcoming EU legislation.
Once Article 50 (the formal process for the UK to leave the EU) is invoked by the Prime Minister, the UK will have two years to thrash out a deal with the rest of the EU, and during that time, we will still be a member of the EU - and thus be subject to the same rules and regulations as any other EU member.
For now, it is unclear what, if any, of the new and timetabled EU legislation over this period may also apply once we have left the EU, however for firms to remain compliant, they must continue to maintain the status quo.
Firms should steel themselves for the possibility of spending considerable time and resources planning for implementation of extensive new EU regulation to some, all or no avail.
Most recently, we have seen EU requirements taking the form of directly applicable Regulations, rather than Directives. The difference being that EU Regulation is directly applicable to financial services firms in EU member states – with such examples as:
On the other hand, EU Directives only require that a member state’s national legislation complies with their requirements, thus member states must integrate EU requirements into local laws.
If it should be at some point in the future that EU Regulation no longer applies to the UK - (dependent upon the negotiations by the UK government and the rest of the EU) - there may potentially be gaps in our local legislation that the UK Regulators would need to fill.
As said, it will be up to the politicians governing this country and their negotiations with the rest of the EU as to what will happen, so for now, we all just have to wait and see whilst remaining calm and compliant. Much is yet to come.
As the Government publication ‘The process for withdrawing from the European Union’ informs, “a vote to leave the EU would be the start, not the end, of a process”.
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Brexit Comment from the FCA:
“Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect”
FCA Statement on European Union Referendum Result, 24 June 2016
Brexit Comment from the HM Government:
“It is therefore probable that it would take an extended period to negotiate first our exit from the EU, secondly our future arrangements with the EU, and thirdly our trade deals with countries outside of the EU, on any terms that would be acceptable to the UK. In short, a vote to leave the EU would be the start, not the end, of a process.”
HM Government: The Process for withdrawing from the European Union