In June 2020, The UK announced that it will no longer implement the fourth phase of the Securities Financing Transactions Regulation or SFTR, which was due to be applied in the EU in January 2021. The UK will also exercise discretion when implementing EU regulations that have not come into force by Brexit’s transition period ends on December 31, 2020.
The UK’s decision to refrain from implementing the fourth phase of SFTR clarifies its position on European regulations. It also gives people a better understanding of the rules that will govern the UK’s financial sector after Brexit.
Established WhatsApp FCA, FINRA, and MiFID II retention regulations will still likely be followed, with possible divergences from what the EU is imposing.
Divergence or Super-Equivalence
The regulations already set allows for open access between the EU and the UK, and maintaining these regulations will enable both parties to reap its benefits. EU negotiators want the UK to retain as many directives and regulations as possible to keep EU market players from suffering various disadvantages.
The UK aims to maintain its equivalence to ensure that its financial firms can passport to the EU and trade with their counterparts there, but it doesn’t mean that the UK will align with all of the EU’s rules. UK rule-makers now desire to adjust how several regulations apply to individual financial institutions to encourage competition and innovation. Some regulatory landscape changes will allow UK-based firms to adapt and be free from potentially restrictive directives in the EU.
There will be some changes in the UK’s financial regulations, and some say that the changes won’t be that significant since the UK was a key influencer in shaping the EU’s legislation and regulations. The changes may be minimal to allow the UK to continue trading with the EU while ensuring that UK firms can become more competitive.
Another camp states that the rules will tighten as the UK proposed super-equivalence after the Brexit transition period. Some of the supervisory requirements imposed in the UK go further than the current European supervisory requirements.
Uncertain Future on Regulatory Landscape
The UK’s regulatory landscape developments will be of critical importance for many financial institutions, especially in the next few years. Many UK-based financial institutions will face uncertainty, complexity, and costs as they adjust with changes in regulations post-Brexit. Any potential future divergences from the EU’s rules and directives will require firms to adapt to stay compliant and competitive in the long run. The UK’s stand on SFTR may indicate future divergences, while proposals for super-equivalence can tighten regulations.
The UK financial regulation landscape will change and be different post-Brexit, but firms can only guess how different it will be for now. Financial institutions can only plan how they’ll meet these changes, especially if the UK will diverge from the EU. Investing in robust archiving solutions to comply with MiFID call recording and message retention regulations in case of equivalence can also let firms comply with new rules in case of divergence.
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