Background

The UK's departure from the EU has provided a "once in a generation" opportunity to review regulation in areas that were previously subject to EU law and the legislation inherited by the UK after Brexit, known as "retained EU law." The FCA, working with HM Treasury, has now started the lengthy process of repealing and replacing retained EU law into the FCA Handbook.

Separately, the EU is moving ahead with its own plans. With both jurisdictions following their own regulatory change initiatives, the differences between the EU and UK frameworks are creating an additional layer of complexity for market participants active in both markets.

Overview  

We are seeing that outside of the EU, the UK is working to tailor its rules to suit the UK market’s growth and competitiveness. The UK has moved forward to enact rules that are more pragmatic and generally, remove rules that are not working as expected or are no longer serving a purpose.

Priority areas of reform have seen significant progress, particularly those reflecting areas in which the government is keen to boost the UK’s attractiveness as a place to do business, including the UK listing and prospectus regimes, MiFID II, the Securitisation Regulation, Solvency II, PRIIPs, and the Money Market Funds Regulation.

We are also seeing divergence on the EU and UK’s approaches to new requirements in important areas such as operational resilience, AI, the Consumer Duty and ESG. Other topics that are now in focus are trading, market data, clearing, and digital finance.

How Should Businesses Proceed?

Regulatory divergence is a factor that should be the focus of individuals at both EU and UK firms charged with advising the business on the impact of proposed changes. We need to accept that all new regulations are likely to diverge to some extent as the EU and UK are now separate.

• There will be common themes and aims for amending existing regulations such as MiFID but the timing for the review and the topics to be revised and amended differ
• Deciding the best jurisdictions to locate and invest in has always been a challenge for firms. It is now even more difficult and firms operating across the EU and UK are faced with a unique set of cross-border legal and regulatory challenges. As rules change, boards need to ensure they have the right strategy and operating model – especially across technology and location of people
• Ensure regulatory change is properly and comprehensively integrated into the business and operating models of your organisation. The C-suite should be central to guiding this process, preparing teams to apply new rules whilst continuing to ensure the best outcome for their clients. Doing so will ensure teams are equipped to respond quickly and in an agile way to future changes coming their way
• Regulatory transformation programmes should be reviewed in the context of further divergence. Nobody wants to make changes to their business processes only to have to unpick that approach where there is regulatory divergence. Looking ahead and joining up common approaches but also identifying the differences will be key

BNY Pershing Can Help Your Firm Post-Brexit

BNY Pershing is prepared to fully support clients with robust and resilient operations across all our EMEA entities..

As part of BNY, a global financial institution, and with BNY Pershing EMEA’s strong presence in Ireland, the UK and Jersey, we continue to be well placed to service clients, minimising any potential challenge, turbulence, and disruption to Europe’s capital markets and to our clients, and supporting our clients as they navigate their own Brexit planning:

• Our flexible operating model enables us to adapt to the developing landscape of European regulation
• We are well placed to handle potential market volatility and increased volumes of trading as the regulatory divergence process evolves
• We are strongly positioned to continue to provide services and solutions to our clients
• The position of our Irish (within the EU), UK and Channel Island regulated legal entities provides BNY Pershing with considerable stability and resilience, as well as optionality for us and our clients as to the choice of booking legal entity; and
• We continue to follow the European Banking Authority (EBA), the European Central Bank (ECB) and the European Securities and Markets Authority (ESMA) as well as our direct regulators, in order to fully understand the implications of the regulatory changes, and ensure that we are as prepared, strategically, operationally and tactically as possible

Linda Gibson, Head of Regulatory Change (June 2024)

We are seeing regulatory divergence in approach between the UK and the EU on all new key requirements (operational resilience, CSDR, the Consumer Duty and ESG, to name a few). Differences are sometimes subtle but still impactful and the implementation timelines vary, too. We now have two regulators moving in different directions and with different priorities which will have a significant impact on firms who need to be able to integrate the amendments into their wider business strategy and look out for more amendments to be announced as they are drip-fed through.

We have seen the number of MiFID firms regulated by the CBI increase and Dublin remains well positioned for UK firms to co-locate or relocate and remains a top choice for operational moves. Being established in Ireland enables Irish MiFID firms to provide services across the EEA via the MiFID services passport. In Ireland, the regulatory framework tends to be aligned with the UK on new initiatives. This positions UK firms well to co-locate in Ireland and benefits our Irish clients who can leverage work undertaken in their UK entity.