FCA’s adjustment allows firms on both sides of the Channel to trade billions worth of derivatives daily
The City’s financial regulator has relaxed rules on transactions worth billions of pounds a day, just hours before the UK officially leaves the EU single market. The Financial Conduct Authority (FCA) used temporary emergency powers on Thursday to allow firms on both sides of the Channel to trade derivatives contracts seen as crucial to financial stability.City watchdog failed to regulate firm that lost investors’ £236mRead moreThe last-minute adjustment came hours before the UK is due to leave the EU single market at 11 p.m. GMT on New Year’s Eve. The move will allow banks and financial firms to trade derivatives known as swaps. These are contracts that allow companies to protect themselves against risks such as fluctuations in interest rates or exchange rates.London is by far the largest location for derivatives trading in Europe.
Before Brexit, Britain’s financial firms had easy access to businesses across the EU, but much of that access has been revoked, with some European policymakers hoping to pull business away from London to cities such as Paris, Amsterdam and Frankfurt.Britain has been pushing Brussels to grant full two-way market access, known as “equivalence,” for swaps trading, but the bloc says it wants information from Britain on its intentions to deviate from EU rules before it can make a decision. The trade deal Boris Johnson’s government and Brussels agreed to on Christmas Eve does not cover financial services, meaning British firms trying to serve EU customers will have to rely on the EU deciding to recognize British regulation as equivalent. Boris Johnson’s post-Brexit trade deal passes into U.K. lawContinue readingThe FCA said Thursday that U.K.-based firms it regulates could use EU platforms instead, provided they don’t have the option of using another location like the U.S. The EU’s refusal to grant equivalence came despite hopes from the U.K. government and the FCA that an agreement could be reached before Jan. 1. The FCA said it “continues to see the UK-EU mutual equivalence arrangement as the best way to avoid disruption to market participants,” as well as avoiding firms having to trade on multiple venues, which could potentially increase costs.The FCA said it will review its approach by the end of March.The Bank of England previously warned that about $200 billion (£146 billion) worth of interest rate swaps could be disrupted due to the clash between UK and EU swap rules.