The UK’s financial regulator has altered its rules on derivatives trading, in an attempt to ease concerns over disruption in this $50tn market ahead of the end of the Brexit transition period.
The Financial Conduct Authority said it had used its temporary transitional power, which allows it to make short-term changes to regulations to help companies adapt to new rules after the end of this year, to let some companies subject to UK rules trade on EU venues. The move will allow, for instance, the UK branches of foreign banks and brokers to transact on EU venues on behalf of EU clients.
Trading in interest rate and credit derivatives, some of the City’s biggest businesses, had become one of the most hotly-contested areas ahead of the end of the Brexit transition period that expires at midnight on December 31.
Last month the Paris-based European Securities and Markets Authority said EU banks operating out of London would still be subject to EU regulations when the transition period ends.
UK regulators had hoped Esma would let those banks continue operating under British rules. Esma had blamed UK regulators and said the dispute was due to a UK requirement on where brokers and banks can trade.
The EU’s refusal to recognise UK trading venues as properly regulated and supervised had left the London branches of EU-based banks facing overlapping and potentially contradictory instructions from two sets of regulators.
The UK side is still hoping to achieve so-called equivalence to avoid that outcome. “The FCA continues to view the agreement of mutual equivalence between the UK and EU as the best way to avoid disruption for market participants,” it said in its statement on Thursday.
France’s financial regulator and banking federation have said they did not support Esma’s approach, because of the danger of contradictory obligations.
The FCA’s latest move does not apply to trade with non-EU clients or trading to hedge a firm’s own risk exposure. It plans to review the rules by the end of March.
“The FCA remains open to co-operation with EU authorities on ways of avoiding conflicting obligations,” the UK regulator said.