- Posted by Michael McKee
- On 10 October 18
- Brexit, Financial Regulation, Financial Services, HM Treasury, MiFID II, Transparency
On 5 October 2018, HM Treasury published a draft statutory instrument on the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (Draft Statutory Instrument) as well as an explanatory note. The Draft Statutory Instrument seeks to ensure that the second Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments
Regulation (MiFIR) regime continues to operate efficiently when the UK leaves the EU.
With a view to ensuring a smooth transition and promoting the policy objectives of orderly markets, investor protection and financial stability, the Draft Statutory Instrument amends a series of statutory instruments relating to:
- Transfer of functions: a series of functions are transferred from the European Securities and Markets Authority (ESMA) and the European Commission to the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) (together, the UK Regulators) and the HM Treasury respectively. The responsibility for developing Binding Technical Standards (BTS) under MiFID II is also transferred to UK Regulators.
- Equivalence decisions: HM Treasury is empowered to make equivalence decisions for third-country regimes. It is noted that any equivalence decisions adopted by the Commission before the UK exits the EU will be incorporated into UK law.
- Information sharing and cooperation requirements: actions by EU authorities shall not be automatically recognised, but UK authorities may continue to co-operate and share information with authorities from the European Economic Area (EEA) on a discretionary basis.
- Temporary Permissions Regime (TPR): EEA firms operating under the TPR may benefit from “substituted compliance” if they can demonstrate compliance with EU MiFID II rules corresponding to the relevant UK regulations, subject to certain exceptions. Given that TPRs do not cover Data Reporting Services Providers (DRSPs), the Draft Statutory Instrument provides for temporary authorisations, for a period of up to one year, for EU-authorised DRSPs that meet the required conditions.
- Recognition of EU firms, instrument scopes and market data: exceptionally, the EU shall not be treated as a third-country when it comes to the classification of emission allowances and certain types of energy forwards, the ancillary activities exemption in relation to commodity derivatives and the treatment of Undertakings for Collective Investment in Transferable Securities (UCITS) as non-complex instruments.
- MiFID II transparency regime: the FCA is granted temporary powers to amend certain transparency calibrations, direct the application of the Double Volume Cap Mechanism and freeze the obligation to publish trading information in relation to certain instruments.
- MiFID II transaction reporting regime: UK branches of EU firms shall be subject to transaction reporting requirements to the FCA, similar to those of non-EEA firms. Firms shall continue to report on trades in financial instruments admitted to trading, or traded, on trading venues in the UK and in the EU.
The HM Treasury plans to finalise the Draft Statutory Instrument and lay it before Parliament this autumn.