The United Kingdom’s impending exit from the European Union continues to cast a shadow on banking operations and regulation. Following Brexit’s serial postponements – last landed on 31 October 2019, with little to no indication that the UK Parliament will approve a deal by then –, uncertainty remains around what the exact date and terms will be. The European Commission has issued detailed preparedness notices to guide entities through the expected changes in EU policy and law, particularly highlighting the financial sector’s challenges.
A critical concern for UK financial entities is the loss of passporting rights, which currently enable them to operate across the EU without additional authorisation. The Commission’s notices caution about possible disruptions in contractual obligations and operations post-Brexit. Temporary equivalence decisions for UK central counterparties and securities depositories could be used to maintain some extent of operational continuity in a no-deal scenario.
Read more on the challenge posed by Brexit on cross-border financial services here.
Adapting UK law post-Brexit. The European Union (Withdrawal) Act 2018 aims to convert EU law into domestic law, while the Financial Services (Implementation of Legislation) Bill addresses the onshoring of pending EU legislation.
Supervision of international banks. The PRA’s policy, effective from March 2018, focuses on the supervision of UK branches of international banks, balancing the economic benefits of branches against potential risks to UK financial stability.
Ring-fencing requirements. UK banks with more than £25 billion in core deposits have been mandated since 1 January 2019 to separate their core and investment banking operations, aiming to safeguard retail banking services.
Senior managers’ regime. Since 7 March 2018, the UK banking industry operates under a new accountability regime, soon to be extended to other financial services firms. This regime emphasises individual accountability at senior levels.
Securitisation and LIBOR Reform. Concurrently to the new European framework for securitisations introduced on 1 January 2019, the UK is focused on transitioning from the LIBOR to alternative interest rate benchmarks.
MiFID II and MiFIR. These regulations, replacing MiFID I on 3 January 2018, bring comprehensive changes, including enhanced non-equity market transparency, stricter regulatory product intervention powers, and tighter controls on high-frequency trading. The UK has transposed these directives through a mix of statutory instruments and regulatory handbook rules.
Payment services and benchmark regulation. The revised Payment Services Directive (PSD2), effective 13 January 2018, pushes for open banking access, facilitating innovation in payment services. The Benchmarks Regulation, operational from 1 January 2018, overhauls the existing UK regime for benchmark administration.
Anti–money laundering initiatives. The 5th Anti–Money Laundering Directive (AMLD 5), in force since 9 July 2018, expands its reach to virtual currency exchanges, and mandates enhanced due diligence for transactions involving high-risk third countries and pre-paid cards.
EU legislative reviews. The EU is revising its banking regulatory framework, particularly focusing on the CRD IV, CRR, and BRRD. These revisions aim adjust the minimum requirement for eligible liabilities (MREL), differentiating between global systemically-important institutions (G-SIIs) and non-G-SII banks.