Draft regulations published by the UK government in recent months amend existing laws regarding the financial market, and will apply upon the United Kingdom’s exit from the European Union on 29 March 2019.

Between August 2018 and October 2018, the UK government published more draft statutory instruments and accompanying explanatory memoranda and guidance in pursuit of the objectives of the European Union (Withdrawal) Act. Nine instruments of particular relevance to the financial markets are set out below.

• Short Selling (Amendment) (EU Exit) Regulations 2018

  This draft legislation amends retained UK law relating to the EU Short Selling Regulation so that it extends only to instruments admitted to trading on UK venues and UK sovereign debt. The Financial Conduct Authority (FCA) will take on responsibility for collating and publishing a list of shares principally traded in third countries (including EU member states) that fall within certain exemptions. The draft legislation will allow market participants to use UK sovereign credit default swaps to hedge correlated assets or liabilities located anywhere in the world, rather than just in the EU. The draft regulations were laid before Parliament on 9 October 2018.
  
  Access the draft regulations and the explanatory memorandum.

• Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

  This draft legislation amends relevant definitions and references to EU law and removes certain cooperation and notification arrangements between UK and EU public entities under the deposit guarantee scheme framework. The framework enables compensation to be paid to depositors when an authorised credit institution fails; the Financial Services Compensation Scheme performs this function in the UK. The draft regulations were laid before Parliament on 9 October 2018.
  
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• Credit Transfers and Direct Debits in Euro (Amendment) (EU Exit) Regulations 2018

  This draft legislation amends the Payments in Euro (Credit Transfers and Direct Debits) Regulations 2012 and the Single Euro Payments Area (SEPA) Regulation, as the UK will become a third country to SEPA once it leaves the EU. The draft legislation retains the SEPA Regulation and amends the Payment Services Regulations to treat euro transactions with SEPA area members as “two legs in”. Both actions are intended to maximise the prospect of the UK remaining in SEPA, enabling efficient and low-cost execution of euro payments. The draft regulations were laid before Parliament on 9 October 2018.

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• Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018

  This draft legislation amends existing payment services regulations so as to ease the transition once the UK leaves the EU. A temporary permissions regime is set out for authorised electronic money institutions so that European Economic Area (EEA) institutions providing payment services immediately before exit day, 29 March 2019, can continue to do so. The draft legislation also includes requirements for EEA entities providing services under the temporary permissions regime without an operational UK subsidiary for up to three years from the UK’s exit from the EU. The draft regulations were laid before Parliament on 9 October 2018.

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• Capital Requirements (Amendment) (EU Exit) Regulations 2018

  This draft legislation amends the Capital Requirements Regulation and certain sector-specific secondary legislation under the Capital Requirements Directive, including so as to (i) allow EU banks operating in the UK to be subject to a UK layer of liquidity consolidation requirements, and (ii) remove preferential treatment for EU27 asset exposure. HM Treasury will take on the EU Commission’s function of making equivalence decisions for third-country regimes. Further amendments concern the transfer of functions from EU authorities to appropriate UK bodies.

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• Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018

  This draft legislation amends retained law relating to the Markets in Financial Instruments Regulation (MiFIR) and certain secondary legislation relating to the Markets in Financial Instruments Directive (MiFID II). It sets out a temporary permissions regime for EEA firms, introducing the concept of “substituted compliance” with the EU’s MiFID II rules. The draft legislation also grants transitional powers to the FCA relating to MiFID II transparency requirements, and provides certain exceptions to its treatment of EU states as third countries. However, UK branches of EEA firms will have to submit transaction reports to both the FCA and their home EEA regulators.

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• Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018

  This draft legislation amends the implementing law of the Alternative Investment Fund Managers Directive (AIFMD) and retained law of the AIFMD Delegated Regulation, including so as to (i) amend the definition of an alternative investment fund (AIF) to any investment fund that is not subject to the UK UCITS regime (see below), (ii) set out a temporary permissions regime that will last for three years from the UK exiting the EU, and (iii) disapply certain UK National Private Placement Regime requirements for funds recognised under Section 272 of the Financial Services and Markets Act (FSMA) for marketing to retail investors.

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• Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018

  This draft legislation amends retained law under the Undertakings for Collective Investment in Transferable Securities (UCITS) framework, including so as to (i) introduce a new label of “UK UCITS” for funds established and authorised in the UK under the regime, and (ii) set out a temporary permissions regime for EEA UCITS that will last for three years from the UK exiting the EU. EEA assets will continue to be given preferential treatment as eligible investments for UK UCITS.

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• Solvency II and Insurance (Amendment etc.) (EU Exit) Regulations 2018

  This draft legislation amends the Solvency II Regulations 2015 and the EU Solvency II Delegated Regulation, including so as to subject cross-border EEA groups with UK insurance subsidiaries to group supervision by the Prudential Regulation Authority, absent any equivalence assessment. HM Treasury will take on the EU Commission’s function of making equivalence decisions for third-country regimes. Whilst preferential risk charges for EEA assets and exposures will be removed, HM Treasury is exploring transitional arrangements. Further amendments concern the transfer of functions from EU authorities to appropriate UK bodies.
  
  Access the draft regulations and the explanatory information.