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Brexit catch up: summary of news in Q1 2021

This final “catch up” post summarises some of the developments and announcements related to Brexit since the transitional period ended on the 31st December 2021, with a focus on the most recent items.

Financial regulation

The UK and the EU agreed a Memorandum of Understanding as to how Financial Services regulation will be discussed in future. The agreement falls short of any binding commitments and instead creates a forum in which matters can be discussed and moved forward. As a result, no equivalence will be forthcoming. The short announcement from HM Treasury can be found here. Some more information can be found in this article by Reuters:

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Edwin Schooling Latter, Director of Markets and Wholesale Policy at the Financial Conduct Authority (FCA), delivered a speech in March entitled “A forward look at regulation of the UK’s wholesale financial markets”. The speech covers the FCA’s vision of the application of regulation to the wholesale market following Brexit. In terms of commodity derivatives, it is worth noting the brief reference:
“Another part of MiFID II about which we have expressed doubts from the outset is the commodity derivatives regime. The EU has also identified the need for revisiting this regime as part of its ‘quick fix’. We think there is scope substantially to simplify this regime.”
The speech can be found here.

The FCA has also announced that it will continue with its approach to the Derivatives Trading Obligation(DTO), which permits firms that are subject to the UK DTO trade with, or on behalf of, EU clients that are subject to the EU DTO, to execute trades on EU venues under certain conditions. The announcement can be found here.

The first auction for UK Allowances (UKA) under the UK Emissions Trading scheme will be held on 19th May by ICE. The announcement can be found here. The FCA has just closed a consultation on the regulation of bidding for UKAs. The paper can be found here.

Earlier in Q1, ESMA issued a reminder to the market on the rules around “reverse solicitation”. In particular, ESMA reminded that where a third-country firm solicits clients or potential clients in the Union it should not be deemed as a service provided at the own exclusive initiative of the client, no matter what disclaimers are inserted in the product engagement process. Provision of Investment Services by non-EU entities to many types of EU entity is not permitted, and if taken up, will not come with the “usual” protections for the client.
The reminder can be found here.

Energy Regulation

Ofgem launched its facility for the registration of market participants under REMIT for those in GB who do not have an ACER code. Details can be found on Ofgem’s page here. Previous instructions from ACER can be found in the post from the end of last year here.

The UK’s Department for Business, Energy and Industrial Strategy (BEIS) has summarised the changes for next year, both in GB and in Northern Ireland. The guidance applies regardless of the state of a political deal. It can be found here.

The House of Lords EU Environment sub-committee released a report detailing its views on electricity pricing and trading post-Brexit. They urge the UK government and the EU to focus on improving cross-border electricity trading arrangements stating it is concerned that consumer electricity prices could increase due to the inefficiency of the initial trading arrangements between GB and the EU and the ISEM, as well as the uncoupling of the two power exchanges.
The report can be found here.