FCA, BoE & CFTC Agree on Derivatives Market Post-Brexit Measures

The three agencies have agreed on measures to ensure a smooth transition of the derivatives markets after Brexit.

The Financial Conduct Authority (FCA) has issued a statement this Monday, confirming that United Kindom and United States authorities are putting measures in place so when the UK leaves the European Union (EU), in whatever form that may take, there will not be regulatory uncertainty regarding the derivatives market between the two markets.

The statement today was released on behalf of the FCA, Bank of England (BoE) and the Commodity Futures Trading Commission(CFTC). Specifically, the three authorities have stated that US trading venues, central counterparties (CCPs) and firms will be able to continue to provide services in the UK.

At present, because the European Commission has declared CFTC regulatory framework equivalent to that of the EU, US trading venues and firms can provide services within the region. Now, UK authorities have come to the same conclusion and British firms will be able to access these firms on the same basis.

Andrew Bailey of the FCA
Andrew Bailey
Source: FCA

Commenting on the new measures, Andrew Bailey, Chief Executive of the FCA, said: “We have worked closely with the CFTC and other UK authorities on these measures to ensure continuity and stability for consumers, investors and other market participants, regardless of the outcome of the UK’s withdrawal from the EU.

“Cooperation with our international partners has always been an important part of our work, and it will remain so after Brexit. This partnership will support our day-to-day supervisory activities and rule-making, as well as encouraging open markets and the development of rigorous global standards, by ensuring that wherever firms operate, they are regulated on a consistent basis.”

BoE, FCA and CFTC Update MoUs to Ensure Smooth Transition Post-Brexit

The BoE, FCA and CFTC have also put in place information-sharing and cooperation arrangements. This is to support effective cross-border oversight of the derivatives markets and participants.

As part of this effort, the BoE and CFTC are in the process of updating their Memorandum of Understanding (MoU), which was originally signed in 2009 and covers clearing activity. This MoU will now recognise CFTC-registered CCPs.

Furthermore, the FCA and CFTC are also updating their MoUs which cover select firms in the derivatives and the alternative investment fund industry. These agreements were signed back in 2013 and 2016.

Mark Carney of the BoE
Mark Carney
Source: Bank of England

The Governor of the Bank of England Mark Carney added: “Derivatives can seem far removed from the everyday concerns of households and businesses, but they are essential for everyone to save and invest with confidence.

“As host of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open. The measures we are announcing today will do that. Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU.”

For more information, you can read the full statement here.

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