Brexit: information for participants in the wholesale markets operating in the UK (including wholesale banks, wholesale markets and asset managers)

If the UK leaves the EU without a deal, UK firms doing business in the EEA will need to consider if and on what basis it may be possible to continue after Brexit. Firms should consider the legal position carefully, seeking advice where appropriate. As firms prepare for Brexit, it is important that senior managers ensure execution is managed appropriately. Firms should discuss their future plans, including contingency plans and underlying assumptions, with us.

Update: 20 December 2019

The government has indicated its commitment to the UK leaving the EU with a Withdrawal Agreement on 31 January 2020, followed by an implementation period during which it will negotiate the UK’s future relationship with the EU. Please keep this in mind when reading these pages.

We will update our pages after 31 January 2020 to reflect the UK’s new status.

What will happen in an implementation period? Read our overview to find out.

Outward passporting and the treatment of clients

If the UK leaves the EU with no deal, passporting rights will fall away. Therefore, if you do business in the EEA based on a passport then you will need to consider if and on what basis it may be possible to continue after Brexit. For example, UK MiFID investment firms will no longer be able to use a passport to provide cross-border services.

There are other ways firms can access the EEA which may not be affected by Brexit, although these will depend on the specific firm, type of activity and the exemption or local permission in question. These include permission under local law or based on rules of a local financial market infrastructure, and local exemptions in an individual EU country.

Firms should speak to regulators in EEA jurisdictions where their clients are based, and have regard to the relevant national law in those jurisdictions. For example, if you intend to rely on reverse solicitation to service existing EEA-based customers without local authorisation, we strongly encourage you to seek legal advice on your plans and understand the national law in each Member State in which you conduct business, to ensure this is permitted in the relevant country and how this impacts your no-deal planning. You should also bear in mind that national regimes may change over time and this could affect your business model in the future.

Firms should also be aware that in the event of a no-deal Brexit, some EEA regulators have put forward proposals to temporarily allow the continuation of some investment activities for UK firms that are currently passporting in to those jurisdictions.

In all cases, firms should consider the legal position carefully, seeking advice where appropriate.

You will need to decide on your approach to servicing clients under existing contracts, taking the steps available to you to continue to service customers following local law and local regulators’ expectations. We expect fair treatment of customers, irrespective of where they are based. In many cases, it would be a poor outcome for the client for you simply to stop servicing them.

Access to financial market infrastructure

We are strongly supportive of open financial markets, cross border trade, high regulatory standards and mutual recognition of cross border regimes based on equivalent outcomes. We will continue to assess firms’ plans for the UK’s withdrawal from the EU and consider the impact these plans may have on clients and the markets. As firms prepare for EU withdrawal, it is important that senior managers ensure execution is managed appropriately. Firms should discuss their future plans, including contingency plans and underlying assumptions, with us, including in respect of market access models, operational models and execution arrangements. We also expect firms to discuss how they will communicate with their clients about these changes and their impacts.

Access to clearing

The UK government has legislated to ensure that UK businesses can continue to use clearing services provided by EU-based clearing houses. The Bank of England has published an interim list of third-country CCPs that, in a no-deal scenario, will offer clearing services and activities in the UK under the temporary recognition regime (TRR).

On 19 December 2018, the European Commission confirmed that in a no-deal scenario, UK central counterparties (CCPs) would be deemed equivalent for 12 months after exit day, and central securities depositories (CSDs) for 24 months after exit day. This will allow EU counterparties to clear new trades with UK CCPs.

Ability of firms to trade on UK and EU trading venues

Broadly speaking, the EU’s Share Trading Obligation (STO) under MiFIR requires EU investment firms to trade EU-listed or traded shares on EU trading venues (or venues in jurisdictions deemed equivalent by the EU). By the EU’s Derivatives Trading Obligation (DTO), a requirement to trade on EU venues applies to financial and non-financial counterparties in relation to some classes of over the counter (OTC) derivatives. The UK will have reciprocal trading obligations when it leaves the EU.

The determination of equivalence for trading venues for the purposes of the EU STO and the EU DTO is a decision for the European Commission, and for the purposes of the UK STO and the UK DTO under the onshored regime such a decision is for the Treasury.

Relevant firms should consider how they will continue to trade securities and meet their obligations in both the EU and UK, as well as other equivalent jurisdictions, under a range of scenarios, consider implications for their clients, and discuss their plans and assumptions with us.

Applications by EEA market operators for ROIE status

EEA market operators can apply to become a recognised overseas investment exchange (ROIE) to continue to provide their UK members with access to their market once the UK leaves the EU. Several market operators have applied or expressed a formal intention to apply to become ROIEs. To help UK users of EEA market operators plan, we have published a list of EEA market operators applying to become a ROIE. The market operators’ details that have already been recognised by the FCA as a ROIE are available on the Financial Services Register.

Continuing to meet threshold conditions

If you are expanding your presence elsewhere in Europe, the structures you put in place must enable us to supervise the conduct of your UK business effectively and ensure that you continue to meet our threshold conditions. Our starting point is not to restrict business models but to understand the principles and practice involved and how the conduct risks that arise from them are managed. We set out some key principles in a letter on Cross-Border Booking Arrangements.

Cooperation agreements

We have agreed Memorandums of Understanding (MoUs) with ESMA and EU regulators to allow cooperation and exchange of information. These MoUs should should minimise the potential for disruption, which we know is particularly important for the investment management sector (such as the delegation of investment management functions), for Credit Rating Agencies and Trade Repositories.

Further information

We issued Brexit-specific Primary Markets Bulletins in February 2019 and October 2019 explaining the application of the post-exit Short Selling Regulation and post-exit Market Abuse Regulation as well as information on changes to our Listing Rules, Disclosure and Transparency Rules and the Prospectus Rules which will take effect in the event of a no deal exit. When reading these you will need to take into account that the date for the UK’s departure from the EU has changed.

If the UK leaves the EU with no deal, we expect firms, trading venues and Approved Reporting Mechanisms (ARMs) to take reasonable steps to comply with their requirements under the Transaction Reporting Regime by exit day and any requirements they have to submit instrument reference data.

Explanatory information from the Treasury on how MiFID, UCITS and AIFMD will be onshored into UK domestic law:

There is more information on the National Private Placement Regime.