FCA expects EU-MiFID license passporting to continue post-Brexit

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It looks like London’s Retail FX brokers and financial institutions can breathe easy.

At least for now.

UK financial regulator the FCA issued a statement this afternoon, indicating that it expects the UK will remain within the MiFID license passporting system after Brexit is implemented, allowing financial services companies (such as FX brokers) to receive a license in one EU jurisdiction, and passport that license fairly easily elsewhere across the EU.

For Forex brokers, passporting allows them to market and take clients from across the EU including from the lucrative UK market, while being licensed in any EU jurisdiction. Many Retail FX brokers are licensed by CySEC in Cyprus.

In the FCA’s words,

it is anticipated… that firms will be able to continue to benefit from passporting between the UK and EEA after the point of exit.

A major unknown of the Brexit process for financial institutions has been the issue of MiFID passporting. That, in the FCA’s view, seems to be a non-issue for now.

What the FCA’s statement also means is that the UK regulator is likely to adopt the final rules that pan-European regulator ESMA has proposed for the leveraged trading sector – cutting max leverage allowed to 30x on FX and CFD trading, banning Binary Options altogether, banning bonus payments to clients, and requiring negative balance protection. In order to remain part of the MiFID system the FCA will need to harmonize its rules with those of ESMA and the EU country regulators, losing some independence when it comes to issues such as setting allowed leverage levels in financial trading.

The FCA’s full statement on the matter follows (we have bolded some of the text for emphasis):

December 20, 2017

FCA Statement on EU Withdrawal

On December 15 2017 The European Council confirmed that sufficient progress had been made to move to the second phase of negotiations related to transition (the ‘implementation period’) and the framework for the future relationship between the UK and the European Union. The FCA welcomes the progress that has been made and is supportive of open markets and free trade in financial services underpinned by strong regulatory standards.

The final nature of any implementation period is yet to be agreed but it is anticipated to mean that firms will be able to continue to benefit from passporting between the UK and EEA after the point of exit and during the implementation period. The FCA welcomes the intention to provide for an implementation period to ensure a smooth and orderly exit of the UK from the EU. The FCA will monitor the negotiations and provide further information to firms as appropriate.

Today, HM Treasury has also announced that, if necessary, the Government will legislate for a temporary permissions regime. This regime will enable relevant firms and funds to undertake new business within the scope of their permission, enable them to continue performing their contractual rights and obligations, manage existing business and mitigate risks associated with a sudden loss of permission.

For firms and funds that are solely regulated in the UK by the FCA they would need to notify the FCA before exit day of their desire to benefit from the regime but this notification for temporary permission will not require the submission of an application for authorisation. We will set out further details of our approach in the New Year.

To support this and to provide consistent and effective supervision, the FCA will continue to cooperate closely with the home state regulators of EEA firms and the European Supervisory Authorities.

Firms based in the UK servicing clients in the EEA should continue to prepare for a range of scenarios and should discuss these arrangements and the implications of an implementation period with the relevant EU regulator. The FCA will keep these expectations under review as negotiations on an implementation period progress and communicate to firms accordingly.

HM Treasury has also announced today that it will provide the FCA with functions and powers in relation to UK and non-UK credit rating agencies and trade repositories. The FCA will work closely with the Government and with UK credit rating agencies and trade repositories with the aim of ensuring a smooth transition to the new UK regime.

The UK remains a Member State of the EU and therefore all rights and obligations derived from EU law continue to apply. Firms must abide by their obligations and continue with implementation plans for legislation that is still to come into effect.

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