UK Decides Against Implementing Certain Key Areas of EU Financial Services Legislation

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[co-author: Anna Lewis-Martinez]

The UK government clarifies its legislative plans for financial services regulatory reforms post-Brexit.

On 23 June 2020, the House of Commons published a written statement from Rishi Sunak, Chancellor of the Exchequer, on the UK’s approach to implementing financial services regulatory reforms before the end of the Brexit transition period, to ensure relevant regulations remain appropriate for the UK financial sector.

The statement outlines several areas, discussed below, in which the UK is looking to amend the implementation of EU financial regulation.

Central Securities Depositories Regulation

The UK will not be implementing the EU’s new settlement discipline regime (SDR), due to apply in February 2021, as set out in the Central Securities Depositories Regulation (CSDR). UK firms should, instead, continue to apply the existing industry-led framework.

The FCA has updated its CSD webpage to reflect this change.

On 24 June 2020, the International Capital Market Association (ICMA) published a statement welcoming the decision not to implement the SDR. However, ICMA stated that notably, “UK trading entities, along with all third country trading entities, are still likely to be brought into scope of the EU CSDR, as it applies at EU settlement level and requires trading parties to put enforceable contractual arrangements in place importing the mandatory buy-in regime.” Therefore, firms still need to think about the SDR, as the regime will impact firms when trading instruments settled in EU CSDs.

Securities Financing Transactions Regulation

The UK will not be incorporating into UK law the reporting obligation of the Securities Financing Transactions Regulation (SFTR) for non-financial counterparties (NFCs), which is due to apply in the EU from January 2021. Given that systemically important NFC trading activity will be captured sufficiently through the other reporting obligations that are due to apply to financial counterparties, it is appropriate for the UK not to impose this further obligation on UK firms.

The FCA has updated its SFTR webpage to reflect this change.

EU Benchmarks Regulation

HM Treasury plans to make amendments to the EU Benchmarks Regulation (BMR) to ensure continued market access to third country benchmarks until the end of 2025. HM Treasury will publish more information in July 2020.

Market Abuse Regulation

HM Treasury intends to amendments relating to the Market Abuse Regulation (MAR) to confirm and clarify that both issuers, and those acting on their behalf, must maintain their own insider lists (although arguably this point is already clear), and to change the timeline issuers must comply with when disclosing certain transaction undertaken by their senior managers (“Persons Discharging Managerial Responsibilities”).

EMIR Refit Regulation

HM Treasury will publish legislation to complete the EMIR REFIT to improve trade repository data and ensure that smaller firms are able to access clearing on fair and reasonable terms.

Packaged Retail and Insurance-based Investment Products

HM Treasury plans to publish legislation to improve the functioning of the UK’s packaged retail and insurance-based investment products (PRIIPS) regime and to address potential risks of consumer harm. HM Treasury will publish more information in July 2020.

Solvency II

HM Treasury plans to bring forward a review of certain features of the Solvency II Directive to ensure that it is properly tailored to take account of the structural features of the UK insurance sector. The review will cover areas including the risk margin, the matching adjustment, the operation of internal models, and reporting requirements for insurers. The government expects to publish a Call for Evidence in Autumn 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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