Even if there’s a trade deal, there’ll be important changes for FS firms


Don't expect regulatory equivalence decisions to provide continuity for FS firms, after the transition period ends.

At present it’s not clear whether the Brexit transition period will end on 31 December 2020 with a trade deal or not. But even if new trade arrangements are agreed, financial firms should recognise that there will be substantial changes to the way they must operate. Beyond the EU’s (time limited) decision to allow EU firms to continue trading on UK CCPs, any substantive decisions about regulatory equivalence look unlikely to be made before the transition period ends. Consequently firms which had assumed that end-of-transition solutions would afford them a high degree of continuity need to revisit their business models urgently.

Media reporting about end-of-transition challenges has mostly focused on goods trade, the prospect of lorry queues and the breakdown of manufacturing supply chains. For FS firms, end-of-transition challenges may not be as vivid, but are no less real. The risks emanate from price and market volatility, service disruptions and poor outcomes for customers and other users. Some of the key challenges are as follows:

  • Share Trading Obligation (STO) and Derivative Trading Obligation (DTO) – rules which require investment firms to trade certain EU shares and derivatives on EU venues. These have the potential to cause market fragmentation, price volatility and disruptions to trading activity. The European Securities and Markets Authority (ESMA) announced some STO mitigation, but only for sterling-quoted European shares listed in London - i.e. for less than 1% of European share trading. The DTO rules also include requirements for the reporting of derivatives trades, with the risk of duplication.

  • Rules for providing investment advice and services (i.e. the Markets in Financial Instruments Regulation, MiFIR) - with the process of implementing its new prudential rules for investment firms incomplete, the European Commission indicated (July 2020) that it does not intend to provide post-transition equivalence (under Article 47) at EU level in this area. This means UK firms without an EU subsidiary will have to rely on permissions by individual member states, or seek other interim arrangements via an EU-based firm.

  • Payments regulation – as third country participants in the Single European Payments Area (SEPA), UK firms to will have to include additional information fields in their payment instructions, for them to be properly processed

  • Data transfer rules - unless there is an EU decision on the adequacy of UK data protection, transfers of personal data within business groups from the EEA to the UK may require contracts for such transfers to be updated, to comply with the EU’s data protection requirements

Regulators are keen to ensure financial stability and the fair treatment of customers by firms. Supervisors are looking for evidence of firms’ communication with clients about their end-of-transition service options for the avoidance of sudden discontinuations of services.


Some firms may have delayed acting, judging that costly actions in advance of final trade rules would risk being a waste of resources, or that some cross-border regulatory cooperation or supervisory forbearance would be likely, in any event. A successful conclusion of trade talks may allow for more regulatory cooperation, but the Commission’s July 2020 Communication and more recent statements have all suggested that expectations for short term decisions on regulatory equivalence should be limited. There are also other clear signals (via regulatory opinions and speeches, and also the legislative programmes in the EU and UK) which suggest regulatory divergence may increase in the medium term (i.e. over the next 2-3 years).

So those hoping for a cross-border operating landscape that will return to a smooth, pragmatic continuity after some short term pressures, seem likely to be disappointed. Alternative operating solutions will be needed to the key challenges, and quickly, even if there is a UK-EU trade deal.


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Brian Polk

Brian Polk

Director, PwC United Kingdom

Tel: +44 (0)7711 898535

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