It’s been more than five years since the Brexit referendum passed with a narrow margin. Representatives from both the UK and the EU have been hard at work during this time to work out a deal for future trade relationships between both parties, and we now have a trade deal in place that eliminates tariffs and quotas but has introduced certain stipulations on various exports.

The biggest change, however, is that, now, the UK has greater regulatory freedom, meaning that financial institutions no longer have to comply with EU laws unless they carry out transactions with EU businesses.

While there are certain merits to the British exit from the EU, many economists argue that Brexit will cause significant uncertainty for the business environment—at least in the short term. 

According to experts, the UK must exercise its newly-gained regulatory freedom to formulate regulations focused on the recovery of the economy, in the short term, and sustainability and development in the long term.

What this means for the financial sector is that institutions can expect a wave of changes to the regulatory landscape driven by a newly-domesticated compliance framework to handle the uncertainty brought about by Brexit.

Which EU regulations will continue in the post-Brexit UK? 

In December 2020, the Financial Conduct Authority (FCA) released guidelines regarding which EU regulations will continue to be enforced in the post-Brexit era. 

These guidelines, collectively known as Temporary Transitional Power (TTP) directions, also provide guidance on which EU regulations are exempted until the end of the transition period in March 2022.

Among these laws, GDPR was adopted widely across the EU. Given its extensive reach, even countries outside the Union implemented it to guide their operations. GDPR will continue to be enforced in the post-Brexit era, as many businesses maintain close ties with European businesses and serve customers from the EU region. 

In addition to GDPR, financial market regulations like MiFID are also expected to continue to be enforced in the UK.

Similarly, the UK Sanctions and Anti-Money Laundering Act of 2018, which is a derivative of the EU anti-money laundering regulation will continue to be enforced for financial institutions that operate in international regions despite the relatively low number of violations across UK banks and other financial institutions. 

These AML laws will govern everything from customer acquisition to individual transactions, and financial institutions will be responsible for reporting susceptible activities to the FCA. 

Apart from these primary regulations, UK and EU regulators will continue to work closely to implement policies that apply to both regions.

How will the regulatory landscape change in the post-Brexit era?

Since Brexit came into effect, the Committee on the Future Relationship with the European Union, which is responsible for reviewing the future of UK/EU relations, has been advocating for greater leeway for the creation of self-regulated organisations in the UK—a departure from the EU model of relying on regulators.

For instance, The UK has been looking at various changes across the board, including the scrapping of caps on dark pools in which traders can trade without signalling their intentions to the wider market.

In line with the increased emphasis on freedom for financial institutions, regulators have also decided not to extend the application of the Securities Financing Transactions Regulation (SFTR) to non-financial companies and have refrained from implementing the EU Central Securities Depositories Regulation (CSDR) settlement discipline regime.

Post-Brexit financial regulations will shape the future of the UK’s financial institutions

With UK regulators gaining greater freedom to explore more specific regulatory guidelines for the finance sector, financial institutions can expect a host of regulation changes in the coming years.

Today, financial service providers need to leverage advanced compliance workflows and tools to keep up with the compliance requirements of the future.

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