World News

EU checks UK compliance with market rules after Brexit

By Huw Jones

LONDON (Reuters) – The European Union’s markets watchdog said it will check how Britain applies the bloc’s financial rules during the transition period that follows Brexit on Friday.

Britain leaves the bloc at 2300 GMT, with a business-as-usual transition period until the end of December when all EU rules still apply.

“In the coming 11 months, ESMA will continue monitoring the application of EU law to/in the UK and will closely monitor developments in preparation for the end of the transition period,” the European Securities and Markets Authority (ESMA) said in a statement on Friday.

ESMA will advise the European Commission in its assessments by June 30 on whether to grant investment firms and trading platforms in London direct access to EU investors after December under an EU system known as equivalence.

Brussels would have to deem that market rules in Britain are closely enough aligned with regulation in the bloc for access to be granted, and ESMA will be checking for any signs of divergence in rules.

British Prime Minister Boris Johnson has said that Britain will not be a “rule taker” after Brexit, meaning it will not continue to copy the bloc’s rules but will write its own.

The EU began toughening up equivalence conditions after Britain voted in 2016 to leave the EU.

ESMA also announced on Friday a public consultation on implementing new, more intrusive requirements for foreign firms like banks that want to sell investment services to customers inside the bloc under equivalence.

“These changes include new reporting requirements from third-country firms to ESMA on an annual basis,” ESMA said.

ESMA will have the power to ask foreign firms authorized to serve EU customers to provide data on all orders and transactions in the EU for a period of five years.

Investment banks using London as an EU base have opened new EU subsidiaries or beefed up existing ones in case of obstacles to obtaining equivalence before the transition period ends.

ESMA said that after Friday Britain will no longer take part in making policy or taking decisions at the Paris-based watchdog.

The EU has yet to finalize new rules that will also directly affect major foreign derivatives clearing houses serving EU investors, in particular the London Stock Exchange’s LCH unit.

(Reporting by Huw Jones; editing by Jason Neely, Andrew Heavens, Kirsten Donovan)