UK regulators have threatened to deviate from EU rules on share trading if Brussels does not deliver market-access permissions to the City of London.
The move on Wednesday by the Financial Conduct Authority is a sign of UK frustration over the EU’s silence on post-January 1 arrangements.
The FCA said it may diverge from the EU’s financial market rule book, known as Mifid, if European counterparts fail to treat London’s stock exchanges as having a supervisory system equal to the EU’s own rules.
The warning came as the UK regulator took steps to defuse investors’ concerns about trading shares around Europe from January, confirming that banks, high-frequency traders and fund managers will be able to use venues based in the EU. The ruling also included private marketplaces run by banks and high-frequency traders, such as dark pools.
The regulator said its approach was intended to ensure investors got the best price for their deals, and gave issuers freedom to choose where and how to raise capital.
However, to protect market integrity, the FCA warned it would need to examine EU rules that govern transparency on share trading. It questioned whether standards on trading large blocks of shares in private deals, or between banks on dark pools, “remain appropriate for the UK in the absence of our current equivalence being recognised”.
The comments reflect the uncertainty that remains over whether the UK will qualify for EU market access provisions for financial services when the Brexit transition expires at the end of the year.
EU negotiators have rejected British attempts to codify new arrangements for co-operation on financial regulation in the two sides’ planned trade treaty, and insisted that the relationship must be based on unilateral access rights that Brussels will remain free to withdraw.
Those rights, known as equivalence provisions, cover areas such as brokerage services and share trading, and are based on the EU judging enough country’s regulations to be as tough as its own.
John Berrigan, the EU’s chief civil servant dealing with financial services policy, told MEPs last week that the EU still needed further clarifications from the UK about its future regulatory plans, to ensure that they would not stray too far from European norms.
Nausicaa Delfas, executive director of international at the FCA, said: “At the end of the transition period, the UK’s and EU’s regimes will be the most equivalent in the world, but as it stands this has not been recognised by the EU.”
Nick Bayley, managing director at consultancy Duff & Phelps, and a former FCA official, said the regulator was caught in the political process. “The rules around share trading may be up for grabs. Dark pools are another example where the FCA doesn’t like the European approach and would want control of it.”
The FCA also sought to contrast its approach with the one taken by the European Securities and Markets Authority over possible restrictions that investors could face in share dealing post-Brexit.
The concerns arise because of a rule in EU law, known as the share trading obligation, which limits EU investors’ right to use venues based outside the bloc for shares already heavily traded within it.
Worries that trading in the shares of companies listed both in the EU and UK could be disrupted by Britain’s exit from the single market led EU governments in recent weeks to consider emergency legislation — but this faced resistance from the European Commission, which said the move would interfere with Brexit talks.
Esma provided a partial solution last month by granting rule exemptions for stocks traded in London in sterling, but its rules would not help companies traded in the City in euros, such as Ryanair and Bank of Ireland. Rather than replicate Esma’s stance, the FCA said its approach was “simple and comprehensive”.
Asked about its stance by the Financial Times, Esma said the agency had to work within the limits of EU law, which only allows exemptions from an EU rule, known as the “share trading obligation”, for shares traded “on a non-systematic, ad hoc, irregular and infrequent basis”.