The Effect of Brexit on MiFID
Since the UK voted to leave the European Union (EU), there have been many questions asked about the impact of Brexit. One question has been around how or if it will impact on MIFID and whether the UK may no longer need to comply with MiFID.
Here, our Global Head of Research, Silvano Stagni, looks at the facts to date and the hypothetical outcomes:
Brexit will be a long process, and it will only start when the British Parliament invokes Article.50 of the Treaty of Lisbon; and only the Parliament can do it. They have indicated that this won't happen any time soon - announcing this week that it will be before the General Election in 2020. That action will then be followed by at least two years of negotiations, a period that could be extended by unanimous consent of all member states. At the end of the negotiations the UK leaves the EU.
MiFID will start on January 3rd, 2018. With the earliest date the UK could leave the EU looking to potentially be 2022, UK financial institutions will still have to comply with MiFID. The FCA recently issued a statement saying “EU derived rules? still apply despite the Brexit vote”.
Brexit may take different shapes.
If the UK joins The European Economic Area (EEA), it will still be part of the Single Market in Financial Service and there will be no change in financial regulation. If the UK becomes a ‘third country’ though, MiFID or a MiFID-like set of rules will have to be in force to guarantee equivalence with the EU and to be able to sign similar equivalence arrangements between the UK and other countries.
While the UK is still part of the EU nothing changes in terms of how the UK provides data; once the country leaves it will depend on the arrangements. On one side, if the UK joins the EEA nothing changes; on the other side, if the UK becomes a ‘third country’ it will need independent data.
MiFID implies systemic assessment, calculations of benchmark and thresholds, as things stand now they are expected to be calculated on a EU/EEA basis. If the UK becomes a third country those calculations will not include the UK, but the UK will definitely need to calculate its own. Practically speaking ESMA and the FCA will work on a different set of data.
Data vendors will however be affected to a lesser extent as they provide market information and reference data, this will all depend on the ease of access to third country markets according to the EU but also UK rules. It is reasonable to expect that the interest on continental market will still be there but any market aggregation, trends, etc., will have to separate the UK from the EU/EEA, if the UK will end up with third party nation status.
So whilst we don't have a crystal ball on what the full impact of Brexit will be, what we do know for sure is that financial institutions still need to comply with MiFID. If they haven't already started, they need to act now to ensure they are compliant by the start date.
If you'd like to discuss the regulatory landscape and the implications of MiFID in more detail, please email one of our experts at firstname.lastname@example.org. Find out more about our MiFID II solutions and download our product sheets on our dedicated Regulation and Risk page.