The European Commission (EC) has revealed that at the end of the Brexit transition period on 31 December 2020, the EU rules of the Markets in Financial Instruments Directive (MiFID) framework for investment services and activities will no longer apply to the UK.
During the transition period, the EC explained that the EU and the UK will negotiate an agreement on a new partnership. However, there is no certainty whether such an agreement will be concluded and will enter into force at the end of the transition period.
After the end of the transition period the UK will be a third country as regards to the implementation and application of EU law in the EU member states.
The announcement was made in a notice to stakeholders regarding the withdrawal of the UK and EU rules in the field of markets in financial instruments.
It stated that if an agreement was in place, it would create a relationship which will be very different from the UK’s participation in the internal market.
The commission explained that at the end of the transition period, UK investment firms will lose their EU passports and will become third-country firms, meaning investment firms will no longer be allowed to provide services in the EU on the basis of their current authorisations.
Elsewhere, it was affirmed that UK market operators/investment firms operating a trading venue or execution venue will no longer benefit from the MiFID authorisation/licence.
UK-based regulated markets (RMs), multilateral trading facilities (MTFs) or systematic internalisers (SI) will no longer be eligible venues for trading shares subject to the Markets in Financial Instruments Regulation (MiFIR) share trading obligation.
Meanwhile, EU counterparts cannot undertake trades in shares subject to the share trading obligation on such platforms, the commission outlined.
Similarly, UK-based RMs, MTFs or organised trading facilities will cease to be eligible venues for the purposes of the MiFIR derivatives trading obligation and EU counterparts will no longer be able to undertake trades on these platforms.
The commission said it is empowered to declare third country trading venues equivalent for the purposes of the EU share and derivatives trading obligations.
It was highlighted that while the assessment of the UK’s equivalence in these areas is ongoing, the assessment has not been finalised.
“All stakeholders thus have to be informed and ready for a scenario where shares and derivatives subject to the EU trading obligations can no longer be traded in the UK trading venues,” the commission commented.
“In both cases, EU counterparts need to reassess their trading arrangements to ensure continued compliance with their obligations under the MiFID framework.”
This comes after the HM Treasury’s chancellor of the exchequer Rishi Sunak, said the UK will see a number of changes being made to its regulatory framework in the financial services space, including the Central Securities Depositories Regulation (CSDR).
Sunak confirmed several major updates to the UK’s Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the country’s securities services market participants.
The chancellor of the exchequer explained that the EU is in the process of implementing a range of provisions on capital markets, with some aspects applying before and after the end of the transition period.
According to Sunak, the government will consider the future approach to the UK’s settlement discipline framework, given the importance of ensuring that regulation facilitates the settlement of market transactions in a timely manner while sustaining market liquidity and efficiency.
As such, the UK will not be implementing the EU’s new settlement discipline regime, set out in the CSDR, which is due to apply in February 2021.
UK firms should instead continue to apply the existing industry-led framework. Any future legislative changes will be developed through dialogue with the financial services industry, and sufficient time will be provided to prepare for the implementation of any new future regime, Sunak explained.
Additionally, the UK will not be taking action to incorporate into UK law the reporting obligation of the EU’s Securities Financing Transactions Regulation (SFTR) for non-financial counterparties, which is due to apply in the EU from January 2021.
Elsewhere, Sunak affirmed that HM Treasury is planning to set out further detail on upcoming legislation including the term packaged retail investment and insurance-based products (PRIIPs).