Asset Servicing Times | HM Treasury sets out financial services regulation update in light of Brexit

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), following the announcement by HM Treasury’s chancellor of the exchequer Rishi Sunak.

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.

Sunak stated: “There are now a range of important regulatory reforms in the process of being implemented at the international and European level that the UK needs to address before the end of the transition period on 31 December 2020.”

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.

It was noted that HM Treasury has considered how to take forward this legislation in the way that is to the benefit of the UK sector, while maintaining high regulatory standards.

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).

Sunak said: “Legislation to improve the functioning of the PRIIPs regime in the UK and address potential risks of consumer harm in response to industry and regulator feedback. HM Treasury will publish a policy statement July 2020.”

HM Treasury will also look to apply further detail on the legislation to complete the implementation of the European Market Infrastructure Regulation (EMIR) REFIT to improve trade repository data and ensure that smaller firms are able to access clearing on fair and reasonable terms.

In terms of updating prudential requirements, Sunak highlighted that the government remains committed to “maintaining prudential soundness and other important regulatory outcomes such as consumer protection and proportionality”.

“However, rules designed as a compromise for 28 countries cannot be expected in every respect to be the right approach for a large and complex international financial sector such as the UK. Now that the UK has left the EU, the EU is naturally already making decisions on amending its current rules without regard for the UK’s interests. We will therefore also tailor our approach to implementation to ensure that it better suits the UK market outside the EU,” Sunak cited.

Meanwhile, for managing upcoming risks, Sunak drew attention to HM Treasury’s written ministerial statement relating to the London Interbank Offered Rate (LIBOR) transition.

The statement sets out the government’s approach to legislative steps that could help deal with “tough legacy” contracts that cannot transition from LIBOR before end-2021.

“In particular the government will use the Financial Services Bill to introduce amendments to the Benchmarks Regulation 2016/1011 as amended by the Benchmarks (Amendment) (EU Exit) Regulations 2018 (the ‘UK BMR’), to ensure that the Financial Conduct Authority powers are sufficient to manage an orderly transition from LIBOR,” Sunak added.

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