Advisers and providers must not halt preparations for Mifid II despite the UK’s exit from the European Union, according to regulatory experts.
It is expected Mifid II will be fully implemented before the two-year negotiation period concludes.
Mifid II, which includes rules around charges disclosure, is expected to be introduced in the UK in January 2018. The European Parliament confirmed the implementation date was delayed from January 2017 in April.
Pinsent Masons financial regulation expert Elizabeth Budd says UK financial services firms must now identify the core requirements of EU regulation and directives that are in their best interests.
She says: “[They must] then lobby the Government to stick to these requirements as they negotiate the terms of the UK’s exit from the EU.”
King and Wood Mallesons partner Tim Dolan explains Mifid II will still need to be implemented.
He says: “Firms will still need to comply with all of the provisions of Mifid II because it is coming into force within the two-year period. Even if we end up in a regime where there is no passport into Europe it may still be the case that the UK Government and regulators decide we want to have a regime that is equivalent to Europe depending on what they negotiate.”
PwC financial services risk and regulation practice partner Laura Cox adds: “Firms will have to keep going. It feels like maybe you should put your pen down at this point but that is not the right answer.
“There are lots of options for where we might end up with an exit. We could go to a Norwegian model where we adopt some pieces of legislation and, in that case, Mifid II would be likely to be one of those [initiatives] that is so embedded in UK law that it would come into the UK virtually wholesale. It is not a time to stop progressing to becoming compliant with that.”
Dolan predicts Brexit will impose a greater workload on the FCA as it considers how European regulations are imposed in the UK.
He says: “[The FCA] will not only have to be supporting Government but it will also need to think about the post-Brexit world and what we will have in place and whether [the regulation] will be equivalent or not.
“The position the FCA and the Prudential Regulation Authority have taken with regard to European regulation has effectively been to copy it out [and that] will not be justifiable in the future. They will have to think about how the regulations are actually applied in Britain. This is all subject to what is renegotiated with Europe regarding Britain’s relationship.”
On Friday, the FCA said financial regulation in the UK that is based on EU legislation will remain in place for the time being.
Apfa director general Chris Hannant says he does not expect a surge in deregulation following the Brexit decision.
He adds: “If we want access to the single market, it is inevitable that Mifid II and the Insurance Distribution Directive will all continue to apply. If we don’t have access, I wouldn’t expect a deregulatory surge from the FCA but there would be more freedom on regulation if they wanted to use it.”