Brexit is just around the corner, with the final chapter in the UK – EU divorce due to play out in January. While it’s still uncertain what the future holds for the trade relationship between the United Kingdom and the European Union, but one thing is for sure. Traders are worried about disruptions in the financial markets after the Brexit transition period is over.
The FCA (Financial Conduct Authority) currently has equivalence with EU financial regulators under the MiFID framework. Once the Brexit transition is over, the MiFID framework will no longer apply to FCA regulated companies.
Unless the two sides can reach an agreement over so-called equivalence, some derivatives trading may need to shift to the United States.
A decision on the matter had been expected toward the end of June. but in the absence of clarity from the UK on how far it plans on diverging from existing regulations, no further clarifications have been forthcoming from EU bodies.
Scott O’Malia, the chief executive of Isda, the International Swaps and Derivatives Association, had this to say;
“There are still some glaring gaps that haven’t been addressed by either the UK or EU, including equivalence for trading venues.”
He went on to add that without equivalence. British and EU companies would be forced to move some of their derivatives trading to the United States.
While the UK and the EU have agreed that their future relationship for financial services needs to be a mutual assessment of whether or not each side qualifies for access rights, this will call for decisions on almost forty market segments, including audit standards, capital adequacy requirements and access to exchanges.
All this is entirely separate from ongoing trade and free-market access talks, these being the subject of a whole different set of negotiations.
Further reading on the ISDA site here.
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