15th March 2019

FCA clarifies approach to MiFID obligations in the event of a no-deal Brexit

The European Securities and Markets Authority (ESMA) has published a statement clarifying its approach to aspects of the MiFID position limits regime, post-trade transparency requirements, derivatives trading obligation and benchmarks regulation if the UK leaves the European Union (EU) without an implementation period (a no-deal scenario).

The Financial conduct Authority (FCA) is setting out its position on these issues. These opinions are relevant for a no-deal scenario and may change depending on the final timing and nature of Brexit.

The Treasury’s approach to the on-shoring of EU legislation into UK law means that UK and EU trading venues will operate to the same set of standards on Day 1 after the UK leaves the EU.

Consequently, if the UK leaves the EU without an implementation period the FCA will not require UK investment firms to make public, through a UK Approved Publication Arrangement (APA), transactions conducted on EU trading venues in instruments that are also traded on a trading venue in the UK.

In addition, commodity derivative contracts traded on EU trading venues should not be considered as economically equivalent OTC contracts and so will not count towards the UK position limit regime.

Under the temporary transitional power, UK investment firms that did not have a reporting obligation for a transaction conducted with an EU27 investment firm before Brexit will not be required to report these transactions to a UK APA for a period of 15 months after Brexit. On 1 February, 2019, the FCA set out its approach to the use of our temporary transitional powers.

EU27 investment firms with a branch in the UK that has entered the UK temporary permissions regime may fulfil their UK trade reporting obligations by continuing to make transactions public through an EU APA, where they are obliged to do so.

The FCA approach to the trading obligation for derivatives is set out in the on-shored MIFID and the associated binding technical standards (BTS). This means that investment firms will need to conclude transactions in certain derivatives only on regulated markets, multilateral trading facilities or organised trading facilities established in the UK or on third-country venues in jurisdictions for which the UK has adopted an equivalence decision.

The FCA will be setting up a UK public register of benchmarks and administrators authorised in the UK. The UK’s approach to bringing the EU Benchmarks Regulation into UK law, including the transitional period and the register of administrators and benchmarks, is set out in full in the UK Government’s Statutory Instrument and is summarised in an explanatory policy note.